<PAGE>
As filed with the Securities and Exchange Commission on November __, 1997
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. 7 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 9
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 [ ] on November 5, 1998 pursuant to
paragraph (b) paragraph (b)
[ ] On October 15, 1997 pursuant to [ ] pursuant to paragraph (a)(1)
paragraph (a)(1)
[ ] 75 days after filing pursuant to [X] on February 1, 1998 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, 1996 on February 19, 1997.
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
Form N-1A
Item
Part A Caption Prospectus
- ------ ------- ----------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of Investment Objectives and Policies;
Registrant 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 Not Applicable
Fund Performance
6. Capital Stock and Other Determination of Net Asset Value; Purchase
Securities 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 Not Applicable
History
13. Investment Objectives and Investment of Assets; Investment
Policies Restrictions
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Trustees and Officers; Control Persons
Holders of Securities
16. Investment Advisory and Investment Management and Other Services;
Other Services Additional Information
17. Brokerage Allocation Investment Management and Other Services
18. Capital Stock and Other Additional Information
Securities
19. Purchase, Redemption and Determination of Net Asset Value
Pricing of Securities
20. Tax Status Investment of Assets; Dividends,
Distributions and Taxes; Additional
Information
21. Underwriters Additional Information
22. Calculations of Performance Portfolio Yield and Total Return Information
Data
23. Financial Statements Financial Statements
</TABLE>
<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.
MID CAP PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities.
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.
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 20.
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 _ _, 1997 (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 _ _, 1997
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . .17
Equity Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Mid Cap Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Small Cap Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . .19
Global Equity Portfolio. . . . . . . . . . . . . . . . . . . . . . . .20
U.S. Government Income Portfolio . . . . . . . . . . . . . . . . . . .20
Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . .20
Managed Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . .21
Additional Information on Investment Objectives and Policies . . . . . . .21
Investment Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . .25
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . .27
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . .28
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . .30
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .31
State Law Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . .31
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . .31
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . .32
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . .34
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
three 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 (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
$15.2 billion at October 31, 1997 and is a subsidiary
of Oppenheimer Capital, a registered investment
adviser, which had assets under management, including
those of OpCap Advisors, of approximately $60.2 billion
at October 31, 1997.
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 the average daily net assets for
the Equity, Mid Cap, Small Cap, Managed and
3
<PAGE>
Global Equity Portfolios; .60 percent of average daily
net assets for the U.S. Government Income Portfolio;
and .40 percent of the average daily net assets for the
Money Market Portfolio (see page 20).
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>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
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 requests to the insurance companies
issuing the Contracts.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994 (1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
------------------- ------------------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of period $25.05 $18.12 $18.57
------------------- ------------------- -----------------------
Income from investment operations:
Net investment income 0.21 0.31 0.09
Net realized and unrealized gain (loss)
on investments 5.52 6.71 (0.54)
------------------- ------------------- -----------------------
Total from investment operations 5.73 7.02 (0.45)
------------------- ------------------- -----------------------
Dividends and distributions to shareholders:
Dividends to shareholders from net (0.24) (0.09) -
investment income
Distributions to shareholders from net (0.47) - -
------------------- ------------------- -----------------------
realized capital gains
Total dividends and distributions (0.71) (0.09) -
------------------- ------------------- -----------------------
Net asset value, end of period $30.07 $25.05 $18.12
------------------- ------------------- -----------------------
------------------- ------------------- -----------------------
Total return (2) 23.4% 38.9% (2.4%)
------------------- ------------------- -----------------------
------------------- ------------------- -----------------------
Net assets, end of period $19,842,998 $9,035,982 $4,281,256
------------------- ------------------- -----------------------
Ratio of net operating expenses to 0.93%(4,5) 0.72% 0.72%(3)
average net assets (6) ------------------- ------------------- -----------------------
Ratio of net investment income to 1.29%(4) 1.74% 1.80%(3)
average net assets (6) ------------------- ------------------- -----------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Portfolio turnover rate 36% 31% 6%
------------------- ------------------- -----------------------
Average commission rate $0.06 -- --
------------------- ------------------- -----------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $14,669,645.
(5) Does not reflect expense offsets. (See note 1G in Notes to Financial
Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally for the year ended December 31, 1996 the Portfolio benefited from
an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net investment
income to average daily net assets would have been 1.05% and 1.15%,
respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
6
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995 (1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
-------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period. $11.61 $10.00
--------------------------- ---------------------
Income from investment operations:
Net Investment Income 0.04 0.05
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and translation of
other assets and liabilities 1.70 1.83
denominated in foreign currencies... --------------------------- ---------------------
Total from investment operations.. 1.74 1.88
--------------------------- ---------------------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment (0.05) (0.03)
income.
Distributions to shareholders from net realized (0.07) (0.24)
capital gains --------------------------- ---------------------
Total dividends and distributions to shareholders (0.12) (0.27)
--------------------------- ---------------------
Net asset value, end of period $13.23 $11.61
--------------------------- ---------------------
--------------------------- ---------------------
Total return (2). 15.0% 18.9%
--------------------------- ---------------------
--------------------------- ---------------------
Net assets, end of period. $16,972,488 $2,891,321
--------------------------- ---------------------
Ratio of net operating expenses to average net assets (5).. 1.42%(3,4) 1.25%(6)
--------------------------- ---------------------
Ratio of net investment income to average net assets 0.81%(3) 1.02%(6)
(5).... --------------------------- ---------------------
Portfolio turnover rate.. 40% 67%
--------------------------- ---------------------
Average commission rate $0.0254 --
--------------------------- ---------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Average net assets for the year ended December 31, 1996 were $9,072,948.
(4) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
7
<PAGE>
(5) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited from
an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net investment
income (loss) to average daily net assets would have been 1.83% and 0.22%,
respectively, for the year ended December 31, 1996, and 3.94.% and (1.67)%,
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
(6) Annualized.
8
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995 (1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
-------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $10.62 $10.00
-------------------------- ----------------------------
Income from investment operations:
Net investment income 0.55 0.60
Net realized and unrealized gain (loss)
on investments (0.24) 0.68
-------------------------- ----------------------------
Total from investment operations 0.31 1.28
-------------------------- ----------------------------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment (0.55) (0.60)
income -------------------------- ----------------------------
Distributions to shareholders from net realized - (0.06)
capital gains -------------------------- ----------------------------
Total dividends and distributions to (0.55) (0.66)
shareholders -------------------------- ----------------------------
Net asset value, end of period $10.38 $10.62
-------------------------- ----------------------------
-------------------------- ----------------------------
Total return (2) 3.0% 13.1%
-------------------------- ----------------------------
-------------------------- ----------------------------
Net assets, end of period $3,421,998 $1,442,458
-------------------------- ----------------------------
Ratio of net operating expenses to average net 0.96%(4,5) 0.75%(3)
assets (6) -------------------------- ----------------------------
Ratio of net investment income to average net 5.27%(4) 5.75%(3)
assets (6) -------------------------- ----------------------------
Portfolio turnover rate 31% 65%
-------------------------- ----------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $2,466,244.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
9
<PAGE>
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited from
an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net investment
income to average daily net assets would have been 2.34% and 3.87%,
respectively, for the year ended December 31, 1996, and 4.73% and 1.77%,
annualized, respectively for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
10
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994 (1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
------------------------- -----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $30.14 $20.83 $21.80
----------------------- --------------------- ---------------------
Income from investment
operations:
Net investment income. 0.43 0.42 0.14
Net realized and unrealized gain
(loss)
on investments 6.31 9.02 (1.11)
----------------------- --------------------- ---------------------
Total from investment operations 6.74 9.44 (0.97)
----------------------- --------------------- ---------------------
Dividends and distributions to shareholders:
Dividends to shareholders from net (0.41) (0.13) -
investment income
Distributions to shareholders from net (0.26) - -
realized capital gains ----------------------- --------------------- ---------------------
Total dividends and distributions to (0.67) (0.13) 0.00
shareholders ----------------------- --------------------- ---------------------
Net asset value, end of period. $36.21 $30.14 $20.83
----------------------- --------------------- ---------------------
----------------------- --------------------- ---------------------
Total return (2). 22.8% 45.6% (4.4%)
----------------------- --------------------- ---------------------
----------------------- --------------------- ---------------------
Net assets, end of period. $180,728,094 $99,188,147 $54,943,371
----------------------- --------------------- ---------------------
Ratio of net operating expenses to 0.84%(4,5) 0.66% 0.66%(3)
average net assets (6) ----------------------- --------------------- ---------------------
Ratio of net investment income to 1.66%(4) 1.85% 2.34%(3)
average net assets (6) ----------------------- --------------------- ---------------------
Portfolio turnover rate. 27% 22% 8%
----------------------- --------------------- ---------------------
Average commission rate. $0.0592 - -
----------------------- --------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
11
<PAGE>
(4) Average net assets for the year ended December 31, 1996 were $130,347,107.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited from
an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net investment
income to average daily net assets would have been 0.85% and 1.65%,
respectively, for the year ended December 31, 1996, 0.74% and 1.77%,
respectively, for the year ended December 31, 1995 and 0.96% and 2.04%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
12
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994 (1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00
------------------------ ----------------------- ------------------------
Income from investment operations:
Net investment income 0.04 0.05 0.01
Net realized gain (loss) on investments (0.00) 0.00 -
------------------------ ----------------------- ------------------------
Total from investment operations 0.04 0.05 0.01
------------------------ ----------------------- ------------------------
Dividends and distributions to shareholders:
Dividends to shareholders from net (0.04) (0.05) (0.01)
investment income
Distributions to shareholders from net (0.00) - -
realized capital gains ------------------------ ----------------------- ------------------------
Total dividends and distributions to (0.04) (0.05) (0.01)
shareholders ------------------------ ----------------------- ------------------------
Net asset value, end of period $1.00 $1.00 $1.00
------------------------ ----------------------- ------------------------
------------------------ ----------------------- ------------------------
Total return (2) 4.5% 5.1% 1.2%
------------------------ ----------------------- ------------------------
------------------------ ----------------------- ------------------------
Net assets, end of period $5,279,042 $4,356,084 $3,519,526
------------------------ ----------------------- ------------------------
Ratio of net operating expenses to 1.01%(4,5) 1.00% 1.00%(3)
average net assets (6) ------------------------ ----------------------- ------------------------
Ratio of net investment income to 4.43%(4) 4.94% 4.13%(3)
average net assets (6). ------------------------ ----------------------- ------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,097,126.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
13
<PAGE>
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited from
an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net investment
income to average daily net assets would have been 1.30% and 4.13%,
respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994 (1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $19.91 $17.38 $17.49
------------------------ ----------------------- -----------------------
Income from investment operations:
Net investment income. 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments 3.45 2.37 (0.17)
------------------------ ----------------------- -----------------------
Total from investment operations 3.59 2.63 (0.11)
------------------------ ----------------------- -----------------------
Dividends and distributions to shareholders:
Dividends to shareholders from net (0.25) (0.05) ---
investment income.
Distributions to shareholders from net (0.64) (0.05) ---
realized capital gains. ------------------------ ----------------------- -----------------------
Total dividends and distributions. (0.89) (0.10) ---
------------------------ ----------------------- -----------------------
Net asset value, end of period $22.61 $19.91 $17.38
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Total return (2). 18.7% 15.2% (.6%)
------------------------ ----------------------- -----------------------
------------------------ ----------------------- -----------------------
Net assets, end of period $34,256,671 $16,004,392 $9,210,443
------------------------ ----------------------- -----------------------
Ratio of net operating expenses to average 0.93%(4,5) 0.74% 0.74%(3)
net assets (6) ------------------------ ----------------------- -----------------------
Ratio of net investment income to average 1.03%(4) 1.75% 1.22%(3)
net assets (6) ------------------------ ----------------------- -----------------------
Portfolio turnover rate. 50% 69% 32%
------------------------ ----------------------- -----------------------
Average commission rate $0.0493 -- --
------------------------ ----------------------- -----------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $22,131,648.
15
<PAGE>
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited from
an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net investment
income to average daily net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
16
<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,
Chairman, Chief Executive Officer 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.
MID CAP PORTFOLIO
The investment objective of the Mid Cap Portfolio is long-term capital
appreciation. The portfolio seeks to achieve its objective through investments
primarily in equity securities of companies with market capitalizations between
$500 million and $5 billion which are believed to be undervalued in the
marketplace in relation to factors such as the company's discretionary cash flow
generation, earnings or assets. 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, strong shareholder-value oriented management, and/or
substantial and growing discretionary cash flow, and a favorable
price-to-intrinsic value relationship. Mid-cap companies may, in some cases,
enjoy some distinct business advantages by virtue of their size and yet be
undervalued in the market, in the following respects: (i) such companies are
generally studied by fewer stock analysts than large companies, resulting in
periodic valuation discrepancies; (ii) institutional investors, which currently
represent a majority of trading volume in shares of publicly-traded companies,
often must invest large pools of money and are reluctant to own the resultant
disproportionately large percentages of a
17
<PAGE>
mid-cap company's securities; (iii) such companies may have available a broader
array of opportunities for value creation due to their relatively smaller size.
These opportunities could include: regional or product line expansion,
consolidating acquisitions of a related business, joint ventures, divestiture of
business units, or sale of the entire company; and (iv) such companies may
retain qualities that have been lost or diminished at their larger counterparts
including focus, a sharp sense of management accountability and speedy response
to competitive developments. Mid-cap companies also may enjoy advantages over
smaller companies, such as the stability of a longer operating record, the
critical mass to exploit international opportunities and a more professional
management. Investment policies aimed to achieve the Portfolio's objective are
set in a flexible framework of securities selection which primarily includes
equity and equity derivative securities, such as common stocks, preferred stock,
convertible securities, rights, warrants, options and puts 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 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. In
addition, the Portfolio may also purchase foreign securities provided that they
are listed on a domestic or foreign securities exchange or traded in domestic or
foreign over-the-counter markets. The Portfolio may also purchase securities in
initial public offerings, or shortly after such offerings have been completed,
when the Manager believes those securities have greater-than-average market
appreciation potential. Investments in the Mid Cap Portfolio are managed by
Eileen Rominger - Managing Director of Oppenheimer Capital, Alan Gutmann -
Senior Vice President of Oppenheimer Capital, and Louis Goldstein - Vice
President of Oppenheimer Capital. Ms. Rominger has been an analyst and
portfolio manager at Oppenheimer Capital since 1981. Mr. Gutmann joined
Oppenheimer Capital in 1991 after working in the merger and acquisition
department of Salomon Brothers, Inc. Mr. Goldstein joined Oppenheimer Capital
in 1991 and formerly had been an analyst for David J. Greene & Co.
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
"NYSE"), the American Stock Exchange or in the over-the-counter market, and will
also include options, warrants, bonds, notes and debentures which are
convertible into or exchangeable for, or which grant a right to purchase or
sell, such securities. In addition, the Portfolio may also purchase foreign
securities provided that they are listed on a domestic or foreign securities
exchange or are represented by American depository receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
The Small Cap Portfolio is managed by Timothy McCormack, Timothy Curro and
Gavin Albert, each of whom is a Vice President of Oppenheimer Capital. Mr.
McCormack became a portfolio manager of the Portfolio in May 1996. He 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 he was a securities
analyst with Gabelli and Company. He has a Masters of Business Administration
degree from the Wharton School. Timothy Curro and Gavin Albert became portfolio
managers of the Portfolio on January 1, 1997. Mr. Curro has been a Vice
President of Oppenheimer Capital since November 1996. Prior thereto, he was a
general partner of Value Holdings, L.P., an investment partnership, from May
1995 to November 1996, a Vice President in the equity research department at UBS
Securities Inc. from June 1994 through May 1995 and from January 1991 through
February 1993 and was a partner with Omega Advisors, Inc. from March 1993 to
March 1994. He has a Masters of Business Administration degree from the
University of California, Berkeley. Mr. Albert, Vice President of Oppenheimer
Capital since December 1996, joined the firm in September 1994 as a research
analyst. Prior thereto he was a management consultant for EDS Energy Management
in 1994, attended the Vanderbilt
18
<PAGE>
University Business School from September 1992 to May 1994 (with a Masters of
Business Administration degree in finance and management) and was a financial
analyst in the Corporate Finance department of Texaco, Inc. from 1990 to 1992.
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. He joined Oppenheimer Capital in 1991. 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.
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. She joined Oppenheimer Capital in 1982.
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.)
19
<PAGE>
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.
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES AND POLICIES
For the Equity, the Mid Cap, 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 U.S.
Government Income Portfolio will be invested in the debt securities identified
under "U.S. Government Income Portfolio."
In the event that future economic or financial conditions adversely affect
equity securities, or stocks are considered overvalued, each of the Equity, Mid
Cap, 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 U.S. Government Income Portfolio may increase
the proportion of its 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.
20
<PAGE>
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 ^
Portfolio 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.
(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 Rule 2a-7 adopted under the Investment Company
Act of 1940 (the "Rule") 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 Investors Service, Inc.
("Moodys"), Standard & Poor's Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff & Phelps") 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.
21
<PAGE>
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 shows the Portfolios' portfolio turnover
rates. The portfolio turnover rates of the Portfolios cannot be accurately
predicted. Nevertheless, it is anticipated that the Equity, Mid Cap, 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 ^ Portfolio
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 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
MONEY MARKET PORTFOLIO. 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.
MID CAP PORTFOLIO. The Mid 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
mid-capitalization companies are normally less than those of
larger-capitalization companies. This often translates
22
<PAGE>
into greater price swings. The waiting period for the achievement of an
investor's objectives might be longer since these securities are not as closely
monitored by research analysts. Thus, it takes more time for investors to
become aware of fundamental changes or other factors which have motivated the
Portfolio's purchase. However, mid-capitalization companies often achieve
higher growth rates and may experience higher failure rates than do
large-capitalization companies.
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,
Mid Cap, 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 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.
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It is expected that the Global Equity Portfolio will invest in American
Depository Receipts ("ADRs"),European Depository Receipts ("EDRs"), or Global
Depository Receipts ("GDRs") 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, Mid Cap, Small Cap, 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, Mid Cap, Small Cap and Equity Portfolios may 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 indices. The Mid Cap, Small Cap and Equity
Portfolios may write covered call options on individual securities and the Mid
Cap Portfolio may write uncovered calls and puts. 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
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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, Mid Cap, Small Cap,
Managed 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.
OPTIONS AND FUTURES. To the extent permitted by applicable state law, the
Global Equity, Mid Cap, 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 Mid
Cap, Small Cap and Equity Portfolios may 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 Mid Cap, 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
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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 and Managed
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.
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 and Managed 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 CIBC Oppenheimer
Corp. ("CIBC Oppenheimer"), a former affiliate of the Manager, to execute
each Portfolio's transactions. ^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
26
<PAGE>
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.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in the amount of total assets does not
require elimination of any security from a Portfolio.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees has overall responsibility for the management
of the Fund under the laws of Massachusetts governing the responsibilities of
trustees of a Massachusetts business trust. In general, such responsibilities
are comparable to those of directors of a Massachusetts business corporation.
The Board of Trustees of the Fund has undertaken to monitor the Fund for the
existence of any material irreconcilable conflict between the interests of
variable annuity Contractowners, variable life insurance Contractowners and
Qualified Plans due to the difference of tax treatment and other considerations,
and shall report any such conflict to the boards of the respective life
insurance companies which use the Fund as an investment vehicle for their
respective variable annuity and life insurance contracts and to the Qualified
Plans. The Boards of Directors of those life insurance companies and the
Manager have agreed to be responsible for reporting any potential or existing
conflicts to the Trustees of the Fund. If a material irreconcilable conflict
exists that affects those life insurance companies, those life insurance
companies have agreed, at their own cost, to remedy such conflict up to and
including establishing a new registered management investment company and
segregating the assets underlying the variable annuity contracts and the
variable life insurance contracts. Qualified Plans which acquire more than 10
percent of the assets of the Fund will be required to report any potential or
existing conflicts to the Trustees of the Fund, and if a material irreconcilable
conflict exists, to remedy such conflict, up to and including redeeming Shares
of the Portfolios held by the Qualified Plans. The Additional Statement
contains information about the Trustees and Officers.
THE ADVISORY AGREEMENT. The Manager is responsible for management of the
Fund's business. Pursuant to the investment advisory agreement (the "Advisory
Agreement") with the Fund, and subject to the authority of the Board of
Trustees, the Manager supervises the investment operations of each Portfolio,
furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities and provides certain
administrative services for the Fund.
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<PAGE>
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, Mid Cap, Global Equity, Managed and Small Cap Portfolios, .60 percent of
the average daily net assets of the U.S. Government Income Portfolio, ^and .40
percent of the average daily net assets of the Money Market Portfolio. Through
at least December 31, 1997, the expenses of the Equity, Small Cap, Managed,
Money Market and U.S. Government Income Portfolios and through December 31,
1998, the expenses of the Mid Cap Portfolio will be voluntarily limited by the
Manager so that annualized operating fund expenses (net of any expense offsets)
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 such that the total
operating expenses (net of any expense offsets) 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 registered investment
adviser with approximately $60.2 billion in assets under management on October
31, 1997. All investment management services performed under the Advisory
Agreement are performed by employees of Oppenheimer Capital. On November 4,
1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered investment adviser
with $125 billion in assets under management through various subsidiaries, and
its affiliates acquired control of Oppenheimer Capital and its subsidiary OpCap
Advisors, the Manager of the Fund. A new Advisory Agreement (on identical terms
as the previous Advisory Agreement) between the Fund and OpCap Advisors became
effective November 5, 1997. The new Advisory Agreement was approved by the
shareholders of each Portfolio of the Fund at a Special Meeting of Shareholders
held on October 14, 1997. Value Advisors LLC, a limited liability company and a
wholly-owned subsidiary of PIMCO Advisors, holds a one-third general partner
interest in Oppenheimer Capital and a 1.0% general partner interest in OpCap
Advisors. Oppenheimer Capital, L.P., a Delaware limited partnership whose units
are traded on The New York Stock Exchange, owns the remaining two-thirds
interest in Oppenheimer Capital. PIMCO Partners G.P., general partner of PIMCO
Advisors, holds the sole general partner interest in Oppenheimer Capital, L.P.
PIMCO Partners, G.P. ("PIMCO GP") owns approximately 42.83% and 66.37%
respectively, of the total outstanding Class A and Class B units of limited
partnership interest ("Units") of PIMCO Advisors and is PIMCO Advisors' sole
general partner. PIMCO GP is a California general partnership with two general
partners. The first of these is Pacific Investment Management Company, which is
a California corporation and is wholly-owned by Pacific Financial Asset
Management company, a direct subsidiary of Pacific Life Insurance Company
("Pacific Life"). PIMCO Partners L.L.C. ("PPLLC"), a California limited
liability company, is the second, and managing general partner of PIMCO GP.
PPLLC's members are the Managing Directors (the "PIMCO Managers") of Pacific
Investment Management Company, a subsidiary of PIMCO Advisors (the "PIMCO
Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S. Meiling,
James F. Muzzy, William F. Podlich, III, Frank B. Rabinovitch, Brent R. Harris,
John L. Hague, William S. Thompson Jr., William S. Powers, David H. Edington,
Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO Advisors is
governed by an Operating Board and an Equity Board. Governance matters are
allocated generally to the Operating Board and the Operating Board delegates to
the Operating Committee the authority to manage day-to-day operations of PIMCO
Advisors. The Operating Board is composed of twelve members, including the
chief executive officer of the PIMCO Subpartnership as Chairman and six PIMCO
Managers designated by the PIMCO Subpartnership. The authority of PIMCO
Advisors' Operating Board and Operating Committee to take certain specified
actions is subject to the approval of PIMCO Advisors' Equity Board. Equity
Board approval is required for certain major transactions (e.g., issuance of
additional PIMCO Advisors' Units and appointment of PIMCO Advisors' chief
executive officer). In addition, the Equity Board has jurisdiction over matters
such as actions which would have material effect upon PIMCO Advisors' business
taken as a whole and (after an appeal from an Operating Board decision) matters
likely to have a material adverse economic effect on any subpartnership of PIMCO
Advisors. The Equity Board is composed of twelve members, including the chief
executive officer of PIMCO Advisors, three members designated by a subsidiary of
Pacific Life, the chairman of the Operating Board and two members designated by
PPLLC. Because of its power to appoint (directly or indirectly) seven of the
twelve members of the Operating Board as described above, the PIMCO
Subpartnership may be deemed to control PIMCO Advisors.
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Because of direct or indirect power to appoint 25% of the members of the Equity
Board, (i) Pacific Life and (ii) the PIMCO Managers and/or the PIMCO
Subpartnership may each be deemed, under applicable provisions of the Investment
Company Act, to control PIMCO Advisors. Pacific Life, the PIMCO Subpartnership
and the PIMCO Managers disclaim such control. 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 or on the previous day on which the exchange was open (if a
week has not elapsed between such days), 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 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 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 PORTFOLIO. Dividends from net investment income on
the U.S. Government Income 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. The Portfolio 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, MID CAP, SMALL CAP, GLOBAL EQUITY AND MANAGED PORTFOLIOS.
Dividends from net investment income, if any, on the Small Cap, Mid Cap, Equity,
Global Equity and Managed Portfolios will be declared and paid at least
annually, and any net realized capital gains, if any, 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
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Internal Revenue Code, it is not expected that any Portfolio of the Fund will be
required to pay any federal income tax on such income and capital gains. Since
the Variable Accounts and the Qualified Plans 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 Prospectus for the Variable
Accounts.
CALCULATION OF PERFORMANCE
From time to time the performance of one or more of the Portfolios may be
advertised. The performance data contained in these advertisements is based
upon historical earnings and is not indicative of future performance. The data
for each Portfolio reflects the results of that Portfolio of the Fund and
recurring charges and deductions borne by or imposed on the Portfolio. As the
performance for any Portfolio does not include charges and deductions under the
Contracts, comparisons with other portfolios used in connection with different
variable accounts may not be useful. Set forth below for each Portfolio is the
manner in which the data contained in such advertisements will be calculated as
well as performance information for the Portfolios as indicated below. This
performance information does not include charges and deductions which are
imposed under the Contracts and described in the Prospectus for the Variable
Accounts.
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.
YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1996 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.47 percent 4.57 percent
(1)Reflects waiver of a portion of the advisory fees by the Manager. Had the
waiver not been in effect during the period, the yield and effective yield would
have been 4.38 percent and 4.48 percent, respectively, for the Money Market
Portfolio.
PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. The performance data for
these Portfolios will reflect the "total return" and may reflect the "yield.".
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.
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<PAGE>
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1996 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.16 PERCENT
(1)Reflects waiver of a portion of the advisory fees by the Manager. Had the
waiver not been in effect during the period, the yield would have been 4.86
percent for the U.S. Government Income Portfolio.
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MID CAP, MANAGED, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS
OF OCC ACCUMULATION TRUST(1,2)
<TABLE>
<CAPTION>
Portfolio For the one year For the five year For the five year
period ended period ended period ended
December 31, 1996 December 31, 1996 December 31, 1996*
----------------- ----------------- ------------------
<S> <C> <C> <C>
Equity 23.36% 17.70% 16.52%
Mid-Cap N/A N/A N/A
Managed 22.77% 19.13% 20.09%
Small Cap 18.72% 14.46% 14.67%
U.S. Government Income 3.02% N/A 7.97%
Global Equity 15.02% N/A 18.51%
</TABLE>
*Inception date of the Global Equity Portfolio is March 1, 1995 and the
inception date of the U.S. Government Income Portfolio is January 3, 1995. The
Equity, Managed and Small Cap Portfolios commenced operations as part of the
Fund on September 16, 1994. The Old Trust commenced operations on August 1,
1988.
- -----(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 and Managed Portfolios, $3,764,598, $8,129,274 and $51,345,102
respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(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 S&P Mid Cap Index,
the Wilshire 750 Mid Cap Index, the Russell Mid Cap 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.
32
<PAGE>
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.
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.
33
<PAGE>
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.
35
<PAGE>
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 _ _, 1997, (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 _ _, 1997.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Investment Management and Other Services . . . . . . . . . . . . . . . . . . 24
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 28
Dividends, Distribution and Taxes. . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Yield and Total Return Information . . . . . . . . . . . . . . . ..30
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
2
<PAGE>
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 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
3
<PAGE>
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.
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
4
<PAGE>
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, Mid Cap, 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 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, 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 Mid Cap, Small Cap and Equity
Portfolios may write calls on individual securities. The Mid Cap and Global
Equity Portfolios are authorized to write covered put and call options and
purchase put and call options on the securities in which they 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. 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
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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 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 received 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
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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 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, Mid Cap, 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
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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 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
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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 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
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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 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. In connection with the 90% test, 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.
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
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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.
INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Mid Cap, 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
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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.
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, Mid Cap, 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, Mid Cap, 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
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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.
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 or by the trustees' delegate in accordance with such
Rules. The trustees or their delegate will determine that the Portfolios' assets
will be subject to reasonable care, based on standards applicable to custodians
in the relevant market, after considering all factors relevant to the
safekeeping of such assets including but not limited to, the custodian's
practices, procedures and internal controls; the custodian's general reputation;
and whether
13
<PAGE>
the Portfolios will have jurisdiction against the custodian. However, no
assurances can be given that the trustees' or their delegates' 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 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, except that these limits do not apply if a portfolio is acquiring
securities of an investment company in the same group of investment companies,
the portfolio only invests in securities of other investment companies that are
part of the
14
<PAGE>
same group, government securities and short-term paper; sales or distribution
charges are charged only at one of the acquired or acquiring investment
companies and the acquired company has a policy restricting it from investing in
securities of other investment companies under these exceptions. 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. Under the Taxpayer Relief Act of
1997, a mark-to-market regime was established 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.
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.
15
<PAGE>
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.
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, MID CAP, 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, Mid Cap, 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.
16
<PAGE>
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 October 31, 1997, 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*
Chairman Emeritus 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., an open-end investment company.
PAUL Y. CLINTON, TRUSTEE
39 Blossom Avenue
Osterville, Massachusetts 02655
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; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, and
OCC Cash Reserves, Inc.; Trustee of OCC Accumulation Trust and Oppenheimer
Quest for Value Funds, each of which is an open-end investment company.
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., Oppenheimer Quest Capital 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
President and Chairman of the Board of Aquila Management Corporation (since
1984), the sponsoring organization and Administrator and/or Advisor or
Sub-Advisor to the following open-end investment companies, and Chairman of the
Board of Trustees and President of each: Churchill Cash Reserves Trust (since
1985), Short Term Asset Reserves (from 1984 to 1993), Pacific Capital Cash
Assets Trust (since
17
<PAGE>
1984), Pacific Capital U.S. Treasuries Cash Assets Trust (since 1988), Pacific
Capital Tax-Free Cash Assets Trust (since 1988), Prime Cash Fund (from 1982 -
1996), Oxford Cash Management Fund (1982-1988) and Trinity Liquid Assets Trust
(1982 - 1985), each of which is a money market fund, Churchill Tax-Free Fund of
Kentucky (since 1986), Tax-Free Fund of Colorado (since 1986), Tax-Free Trust of
Oregon (since 1985), Tax-Free Trust of Arizona (since 1985), Tax-Free Fund For
Utah (since 1992) Narragansett Insured Tax-Free Income Fund (since 1992), and
Hawaiian Tax-Free Trust (since 1984), each of which is a tax-free municipal bond
fund, and of Aquila Rocky Mountain Equity Fund (since 1994) and Aquila Cascadia
Equity Fund (since 1996), each of which is a regional equity fund; Vice
President, Director, Secretary, and formerly Treasurer of Aquila Distributors,
Inc. (since 1981), distributor of each of the above funds; President and
Chairman of the Board of Trustees of Capital Cash Management Trust (CCMT), a
money market fund (since 1981) and an Officer and Trustee/Director of its
predecessors (since 1974); President and Director of STCM Management Company,
Inc., sponsor and Subadvisor to CCMT; Director, Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital 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, 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., Oppenheimer Quest Capital 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, all of which are
open-end investment companies.
GAVIN ALBERT, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President of Oppenheimer Capital since December 1996 and securities analyst
with Oppenheimer Capital since 1994; management consultant with EDS Energy
Management in 1994; attended Vanderbilt University Business School from
September 1992 to May 1994 (Masters of Business Administration degree in finance
and management).
ROBERT J. BLUESTONE, VICE PRESIDENT
Managing Director, Oppenheimer Capital; Vice President, OCC Cash Reserves, Inc.,
an open-end investment company; Executive Vice President of Municipal Advantage
Fund Inc., a closed-end investment company.
18
<PAGE>
TIMOTHY CURRO, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President of Oppenheimer Capital since November 1996; general partner of
Value Holdings, L.P., an investment partnership from May 1995 to November 1996;
Vice President in the Equity Research Department of UBS Securities Inc. from
June 1994 to May 1995 and from January 1991 through February 1993 and a partner
with Omega Advisors, Inc. from March 1993 to March 1994.
PIERRE DAVIRON, VICE PRESIDENT AND PORTFOLIO MANAGER
President and Chief Investment Officer, Oppenheimer Capital International, a
division of Oppenheimer Capital and a Managing Director of Oppenheimer Capital;
Executive Vice President of The Czech Republic Fund, Inc., a closed-end
investment company. 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.
BERNARD H. GARIL, VICE PRESIDENT
President and Chief Operating Officer of OpCap Advisors and a Managing Director
of Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc., an open-end
investment company and President of The Czech Republic Fund, Inc. and Municipal
Advantage Fund, Inc., closed-end investment copmpanies.
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; joined Oppenheimer Capital as a security
analyst in 1991.
ALAN GUTMANN, VICE PRESIDENT AND PORTFOLIO MANAGER
Senior Vice President and Equity Portfolio Manager, Oppenheimer Capital; joined
Oppenheimer Capital in 1991 as a Security Analyst.
BENJAMIN GUTSTEIN, VICE PRESIDENT & PORTFOLIO MANAGER
Assistant Vice President, Oppenheimer Capital since 1996; joined the firm in
1993; prior thereto, associate at Lehman Brothers.
VIKKI HANGES, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; Assistant Vice President, Oppenheimer
Capital, 1987-1992.
19
<PAGE>
DEBORAH KABACK, SECRETARY
Senior Vice President and Deputy General Counsel, Oppenheimer Capital; Secretary
of OCC Cash Reserves, Inc., an open-end investment company and Secretary of The
Czech Republic Fund, Inc. and Municipal Advantage Fund Inc., closed-end
investment companies.
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.
RICHARD L. PETEKA, ASSISTANT TREASURER
Vice President, Oppenheimer Capital; Assistant Treasurer of OCC Cash Reserves,
Inc., an open-end investment company and Treasurer of The Czech Republic Fund,
Inc. and Municipal Advantage Fund Inc., closed-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., an open-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, 1996 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 1996 fiscal year. The Managed
Portfolio and the Small Cap Portfolio of the Fund were the only Portfolios of
the Fund that paid fees to the Trustees.
20
<PAGE>
<TABLE>
<CAPTION>
Name of Trustee Aggregate Pension or Estimated Annual Total
of the Fund Compensation Retirement Benefits upon Compensation
from the Fund Benefits Retirement from the Fund
Accrued as and the Fund
Part of Fund Complex
Expenses
<S> <C> <C> <C> <C>
Paul Clinton $7,050 0 0 $71,294.
Thomas Courtney $6,600 0 0 $68,594.
Lacy Herrmann $7,050 0 0 $73,557.
Joseph La Motta 0 0 0 0
George Loft $7,050 0 0 $80,657.
</TABLE>
For the purpose of the chart above "Fund Complex" includes the Fund, other
funds advised by the Manager and the Oppenheimer Quest Funds for which the
Manager serves as subadviser.
CONTROL PERSONS
As of October 31, 1997, 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.
21
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF OCT. 31, 1997(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIOS
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED MID CAP
MARKET INCOME EQUITY CAP
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mutual Life
Insurance Company 62.12% 31.73% --- 14.07% 5.13% 16.45% ---
of New York
(New York, NY) & The
MONY Life
Insurance Company
of America
(New York, NY)
- -------------------------------------------------------------------------------------------------------------------
Provident Mutual
Life Insurance --- --- --- 84.31% 21.81% 16.78% ---
Company
(Philadelphia, PA) &
Providentmutual
Life and Annuity
Company of America
(Newark, DE)
- -------------------------------------------------------------------------------------------------------------------
Connecticut General
Life Insurance --- --- 98.36% .32% 16.06% 24.47% ---
Company & CIGNA
Life Insurance
Company
(Hartford, CT)
- -------------------------------------------------------------------------------------------------------------------
Providian Life and
Health Insurance --- 29.04% --- --- 15.62% 6.63% ---
Company
(Frazer, PA)
- -------------------------------------------------------------------------------------------------------------------
American Enterprise
Life Insurance --- 34.15% --- --- --- 1.81% ---
Company
(Indianapolis, IN)
- -------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital
(New York, NY) 37.88% 5.08% --- --- --- --- ---
- -------------------------------------------------------------------------------------------------------------------
IL Annuity and
Insurance Company
(Indianapolis, IN) --- --- --- --- 2.25% 2.13% ---
- -------------------------------------------------------------------------------------------------------------------
PRUCO Life
Insurance Company --- --- --- --- 37.85% 31.22% ---
of New Jersey and
PRUCO Life
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIOS
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED MID CAP
MARKET INCOME EQUITY CAP
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Insurance Company
(Newark, NJ)
ReliaStar Life
Insurance Company --- --- 1.64% 1.30% 1.28% .51% ---
(Minneapolis, MN)
</TABLE>
23
<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 October 31, 1997, 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. To the best knowledge of the
Fund, no Contractowner held units equivalent to 5% or more of the shares of any
Portfolio of the Fund as of October 31, 1997.
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.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE ADVISORY AGREEMENT. The initial 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 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, 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 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
24
<PAGE>
expenses of the Portfolios of the Fund to 1.25% (net of any expense offsets) of
their respective average daily net assets.
On February 28, 1997, the Board of Trustees including a majority of the
Trustees who are not "interested persons" of the Fund, approved a new Advisory
Agreement (the "Advisory Agreement"), on identical terms as the initial Advisory
Agreement, as amended, to take effect upon the acquisition by PIMCO Advisors
L.P. and its affiliates (the "PIMCO Partners") of a controlling interest in
Oppenheimer Capital and its subsidiary OpCap Advisors, the Manager of the Fund
(the "Transaction"). The Advisory Agreement was approved by the shareholders
of each Portfolio of the Fund at a Special Meeting of Shareholders held on
October 14, 1997. The Transaction was consummated on November 4, 1997 and the
new Advisory Agreement became effective on November 5, 1997.
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, the Manager waived its fee of $6,957, $14,599 and $4,105 for the
Equity, Small Cap and Money Market Portfolios, respectively. In addition, the
Manager reimbursed operating expenses of $9,647, $7,395 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 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 and $4,873 for the Global Equity 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. For the fiscal
year ended December 31, 1996, the total advisory fees accrued or paid by the
Equity, Managed, Small Cap, Money Market, U.S. Government Income and Global
Equity Portfolios were $109,057, $972,381,
25
<PAGE>
$165,735, $16,388, $14,797 and $71,811, respectively, of which $18,150, $8,220,
$17,823, $11,550, $14,797 and $37,689, was waived by the Manager. In addition,
the Manager reimbursed operating expenses of $19,305 for the U.S. Government
Income Portfolio.
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 Money Market 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, 1996, the aggregate dollar amount
involved in such transactions was $1,378,195, with related commissions of
$1,861.
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 CIBC
Oppenheimer Corp, Inc. ("CIBC Oppenheimer"), which prior to the consummation of
the acquisition by the PIMCO Partners of a controlling interest in Oppenheimer
Capital and OpCap Advisors was an affiliated broker-dealer.
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, for the year ended December 31, 1995 and for the year ended
December 31, 1996.
26
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TOTAL BROKERAGE BROKERAGE COMMISSIONS
COMMISSIONS PAID PAID TO CIBC OPPENHEIMER
- -----------------------------------------------------------------------------------------------------------------------------------
$ AMOUNTS %
- -----------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY 1,293 $ 6,942 $14,116 $ 912 $ 3,800 $ 5,743 70.5 55.0 40.7
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGED 10,865 65,136 107,123 7,415 26,544 61,183 68.2 41.0 57.1
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP 10,897 35,395 52,990 4,191 12,805 23,565 38.5 36.0 44.5
- -----------------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY -- 11,614 41,242 -- 490 4,563 -- 4.0 11.1
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PORTFOLIO TOTAL AMOUNT OF TRANSACTIONS
WHERE BROKERAGE COMMISSIONS PAID TO CIBC OPPENHEIMER
- -------------------------------------------------------------------------------------------
$ AMOUNTS %
- -------------------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY $ 647,308 $ 2,513,857 $5,747,719 73.20 51.3 50.5
- -------------------------------------------------------------------------------------------
MANAGED 5,133,805 19,748,754 50,188,690 66.60 47.1 59.0
- -------------------------------------------------------------------------------------------
SMALL CAP 1,305,205 3,948,081 8,870,059 30.14 32.3 45.4
- -------------------------------------------------------------------------------------------
GLOBAL EQUITY -- 450,584 4,995,531 -- 16.0 33.6
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund did not effect principal transactions with CIBC OPPENHEIMER while
it was an affiliated broker-dealer. 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each of the Portfolios of the Fund is
determined each day the
27
<PAGE>
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, Martin Luther King's Birthday, 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 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
28
<PAGE>
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
accretion or 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 deviation between the net asset value per
share of the Money Market Portfolio's shares based on available market
quotations from the Portfolio's amortized cost price per share reaches 1/2 of
1%, 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 deviation between
the net asset value per share based on available market quotations from the
Portfolio's amortized cost price per share reaches $.003. 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from net
income of the
29
<PAGE>
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 original issue and market discount, less the amortization of market
premium and less 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.
OTHER PORTFOLIOS. The dividend policies of the U.S. Government Income,
Equity, Mid Cap, Global Equity, Managed and Small Cap Portfolios are discussed
in the Prospectus. In computing interest income, these Portfolios will accrete
any discount or amortize any 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. At December 31,
1996, the Small Cap Portfolio will utilize $87,890 of prior year post October
losses. Additionally, at December 31, 1996, the Money Market Portfolio incurred
net realized capital losses of $14 which will expire in 2004 and the U.S.
Government Income Portfolio incurred net realized capital losses of $6,203 which
will expire in 2004. 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 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
30
<PAGE>
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, 1996 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.47% 4.57%
(1)Reflects waiver of a portion of the advisory fees by the Manager. Had the
waiver not been in effect during the period, the yield and effective yield
would have been 4.38% and 4.48%, respectively, for the Money Market Portfolio.
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
31
<PAGE>
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, 1996 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.16%
(1)Reflects waiver of a portion of advisory fees ^by the Manager. Had the
waiver ^not been in effect during the period, the yield would have been 4.86%
for the U.S. Government Income Portfolio.
Current yield is calculated according to the following formula:
x 6
YIELD = 2 ( ----/1) - l
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.
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
32
<PAGE>
$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):
N
P (1 + T) = 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, S&P Mid Cap Index, the Wilshire 750 Mid Cap
Index, the Russell Mid Cap 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.
33
<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MANAGED, MID CAP, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS OF OCC ACCUMULATION TRUST(1),(2)
<TABLE>
<CAPTION>
Portfolio For the one For the five year For the period
- --------- year period ended period ended from inception to
December 31, 1996 December 31, 1996 December 31, 1996*
------------------- ----------------- ------------------
<S> <C> <C> <C>
Equity 23.36% 17.70% 16.52%
Mid Cap N/A N/A N/A
Managed 22.77% 19.13% 20.09%
Small Cap 18.72% 14.46% 14.67%
U.S. Government Income 3.02% N/A 7.97%
Global Equity 15.02% N/A 18.51%
</TABLE>
*Inception date of the Global Equity Portfolio is March 1, 1995 and the
inception date of the U.S. Government Income Portfolio is January 3, 1995. The
Equity, Managed and Small Cap Portfolios commenced operations as part of the
Fund on September 16, 1994. The Old Trust commenced operations on August 1,
1988.
(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 and Managed Portfolios, $3,764,598, $8,129,274 and
$51,345,102, respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed 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)
34
<PAGE>
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.
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.
35
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - 1.6%
$ 320,000 Federal Home Loan Bank, 5.19%, 1/9/97(cost-$319,631).................. $ 319,631
----------
SHORT-TERM CORPORATE NOTES - 12.9%
AUTOMOTIVE - 4.5%
$ 900,000 Ford Motor Credit Co., 5.40%, 1/28/97................................. $ 896,355
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.6%
470,000 Household Finance Corp., 5.34%, 1/7/97................................ 469,582
640,000 Prudential Funding Corp., 5.62%, 1/8/97............................... 639,301
----------
1,108,883
----------
TECHNOLOGY - 2.8%
IBM Credit Corp.,
155,000 5.22%, 1/7/97......................................................... 154,865
290,000 5.32%, 1/7/97......................................................... 289,743
118,000 5.46%, 1/7/97......................................................... 117,892
----------
562,500
----------
Total Short-Term Corporate Notes (cost-$2,567,738).................... $ 2,567,738
----------
<CAPTION>
SHARES
------
<C> <S> <C>
COMMON STOCKS - 87.5%
AEROSPACE/DEFENSE - 4.7%
5,000 Lockheed Martin Corp. ................................................ $457,500
7,494 McDonnell Douglas Corp................................................ 479,616
----------
937,116
----------
BANKING - 7.5%
6,556 Citicorp.............................................................. 675,268
3,033 Wells Fargo & Co. .................................................... 818,152
----------
1,493,420
----------
CHEMICALS - 3.6%
2,000 du Pont (E.I.) de Nemours & Co. ...................................... 188,750
7,698 Hercules, Inc. ....................................................... 332,939
4,910 Monsanto Co. ......................................................... 190,876
----------
712,565
----------
CONGLOMERATES - 2.8%
2,156 General Electric Co. ................................................. 213,174
7,500 Tenneco, Inc.*........................................................ 338,437
----------
551,611
----------
</TABLE>
A-1
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS - 2.1%
3,844 Avon Products, Inc.................................................... $ 219,589
6,843 Mattel, Inc. ......................................................... 189,893
----------
409,482
----------
DRUGS & MEDICAL PRODUCTS - 3.1%
14,042 Becton, Dickinson & Co. .............................................. 609,072
----------
ELECTRONICS - 2.7%
7,038 Arrow Electronics, Inc.*.............................................. 376,533
5,000 Electronic Arts, Inc.*................................................ 149,687
----------
526,220
----------
ENERGY - 1.4%
698 El Paso Natural Gas Co. .............................................. 35,224
4,996 Triton Energy Ltd.*................................................... 242,306
----------
277,530
----------
ENTERTAINMENT - .1%
1,700 TCI Satellite Entertainment, Inc.*.................................... 16,787
----------
FOOD SERVICES - 2.4%
10,500 McDonald's Corp. ..................................................... 475,125
----------
HEALTH & HOSPITALS - 4.8%
12,000 Columbia/HCA Healthcare Corp. ........................................ 489,000
5,000 OrNda HealthCorp.*.................................................... 146,250
14,000 Tenet Healthcare Corp.*............................................... 306,250
----------
941,500
----------
INSURANCE - 23.2%
15,700 ACE Ltd. ............................................................. 943,963
7,372 AFLAC, Inc. .......................................................... 315,153
3,262 American International Group, Inc. ................................... 353,112
17,000 Everest Reinsurance Holdings, Inc. ................................... 488,750
24,452 EXEL Ltd. ............................................................ 926,119
2,000 General Re Corp. ..................................................... 315,500
10,000 Mid Ocean Ltd. ....................................................... 525,000
4,579 Progressive Corp. (Ohio).............................................. 308,510
13,000 RenaissanceRe Holdings Ltd. .......................................... 429,000
----------
4,605,107
----------
LEISURE - 2.3%
14,000 Carnival Corp. ....................................................... 462,000
----------
</TABLE>
A-2
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MACHINERY/ENGINEERING - 3.4%
9,000 Caterpillar, Inc. .................................................... $ 677,250
----------
MANUFACTURING - 4.9%
3,000 Armstrong World Industries, Inc. ..................................... 208,500
17,560 LucasVarity Corp. PLC ADR*............................................ 667,280
8,000 Shaw Industries, Inc. ................................................ 94,000
----------
969,780
----------
METALS & MINING - .3%
2,145 Freeport McMoRan Copper & Gold (Class B).............................. 64,082
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.7%
19,912 Countrywide Credit Industries, Inc. .................................. 569,981
5,155 Federal Home Loan Mortgage Corp. ..................................... 567,694
----------
1,137,675
----------
PRINTING/PUBLISHING - 1.7%
11,000 Donnelley (R.R.) & Sons Co. .......................................... 345,125
----------
RETAIL - 2.6%
10,888 May Department Stores Co. ............................................ 509,014
----------
TELECOMMUNICATIONS - 2.9%
6,000 Sprint Corp. ......................................................... 239,250
25,000 Tele-Communications, Inc. (Class A)*.................................. 326,563
----------
565,813
----------
TRANSPORTATION - 5.3%
4,300 AMR Corp.*............................................................ 378,938
13,000 Canadian Pacific Ltd. ................................................ 344,500
8,000 CSX Corp. ............................................................ 338,000
----------
1,061,438
----------
Total Common Stocks (cost - $13,605,569).............................. $17,347,712
----------
Total Investments (cost - $16,492,938)...................... 102.0% $20,235,081
Other Liabilities in Excess of Other Assets................. (2.0) (392,083)
----- -----------
Total Net Assets............................................ 100.0% $19,842,998
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-3
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $16,492,938)...................................... $20,235,081
Cash............................................................................ 114,721
Dividends receivable............................................................ 17,264
Receivable from fund shares sold................................................ 10,703
Other assets.................................................................... 883
-----------
Total Assets.................................................................. 20,378,652
-----------
LIABILITIES
Payable for investments purchased............................................... 494,608
Investment advisory fee payable................................................. 18,017
Payable for fund shares redeemed................................................ 6,182
Other payables and accrued expenses............................................. 16,847
-----------
Total Liabilities............................................................. 535,654
-----------
Total Net Assets.............................................................. $19,842,998
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 6,598
Paid-in-capital in excess of par................................................ 15,232,928
Accumulated undistributed net investment income................................. 188,895
Accumulated undistributed net realized gain on investments...................... 672,434
Net unrealized appreciation on investments...................................... 3,742,143
-----------
Total Net Assets.............................................................. $19,842,998
===========
Fund shares outstanding......................................................... 659,810
-----------
Net asset value per share....................................................... $ 30.07
===========
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 185,285
Interest....................................................................... 137,420
----------
Total investment income..................................................... 322,705
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 109,507
Custodian fees (note 1G)....................................................... 16,342
Auditing, consulting and tax return preparation fees........................... 10,185
Transfer and dividend disbursing agent fees.................................... 9,252
Reports and notices to shareholders............................................ 3,011
Legal fees..................................................................... 2,206
Miscellaneous.................................................................. 4,221
----------
Total operating expenses.................................................... 154,724
Less: Investment advisory fees waived (note 2A)............................. (18,150)
Less: Expense offset arrangement (note 1G).................................. (2,764)
----------
Net operating expenses................................................. 133,810
----------
Net investment income.................................................. 188,895
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 672,433
Net change in unrealized appreciation (depreciation) on investments............ 2,218,378
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 2,890,811
----------
Net increase in net assets resulting from operations............................. $3,079,706
==========
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 188,895 $ 111,781
Net realized gain on investments........................... 672,433 233,302
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,218,378 1,628,793
----------- ----------
Net increase in net assets resulting from operations..... 3,079,706 1,973,876
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (111,781) (20,888)
Net realized gains......................................... (223,969) --
----------- ----------
Total dividends and distributions to shareholders........ (335,750) (20,888)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 9,184,397 3,630,236
Reinvestment of dividends and distributions................ 335,750 20,888
Cost of shares redeemed.................................... (1,457,087) (849,386)
----------- ----------
Net increase in net assets from fund share
transactions.......................................... 8,063,060 2,801,738
----------- ----------
Total increase in net assets.......................... 10,807,016 4,754,726
NET ASSETS
Beginning of year.......................................... 9,035,982 4,281,256
----------- ----------
End of year (including undistributed net investment income
of $188,895 and $111,781, respectively).................. $19,842,998 $ 9,035,982
=========== ==========
SHARES ISSUED AND REDEEMED
Issued..................................................... 339,540 161,702
Issued in reinvestment of dividends and distributions...... 13,029 1,074
Redeemed................................................... (53,448) (38,368)
----------- ----------
Net increase............................................. 299,121 124,408
=========== ==========
</TABLE>
See accompanying notes to financial statements.
A-6
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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 Trust is comprised of seven portfolios: the Equity Portfolio
(the "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 (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities 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 "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
A-7
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
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-capital or tax return of capital. At December 31, 1996,
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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $14,116, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $5,743.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $11,763,936 and $4,337,943,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,901,280, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $159,137 and net unrealized appreciation for Federal income tax purpose is
$3,742,143. Federal income tax cost basis of portfolio securities is $16,492,938
at December 31, 1996.
A-8
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-9
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 25.05 $ 18.12 $ 18.57
-------- ------- -------
Income from investment operations:
Net investment income................... 0.21 0.31 0.09
Net realized and unrealized gain (loss)
on investments........................ 5.52 6.71 (0.54)
-------- ------- -------
Total from investment operations...... 5.73 7.02 (0.45)
-------- ------- -------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.24) (0.09) --
Distributions to shareholders from net
realized capital gains................ (0.47) -- --
-------- ------- -------
Total dividends and distributions to
shareholders....................... (0.71) (0.09) --
-------- ------- -------
Net asset value, end of period.......... $ 30.07 $ 25.05 $ 18.12
======== ======= =======
Total return(2)......................... 23.4% 38.9% (2.4%)
======== ======= =======
Net assets, end of period............... $19,842,998 $ 9,035,982 $ 4,281,256
-------- ------- -------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.72% 0.72%(3)
-------- ------- -------
Ratio of net investment income to
average net assets(6)................. 1.29%(4) 1.74% 1.80%(3)
-------- ------- -------
Portfolio turnover rate................. 36% 31% 6%
-------- ------- -------
Average commission rate................. $ 0.0588 -- --
-------- ------- -------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $14,669,645.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.05% and
1.15%, respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC 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
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, 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, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-11
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - .7%
$ 230,000 Federal Home Loan Mortgage Corp., 5.23%, 1/2/97 (cost - $229,967).... $ 229,967
-----------
SHORT-TERM CORPORATE NOTES - 16.8%
AUTOMOTIVE - 2.5%
Ford Motor Credit Co.,
$ 345,000 5.40%, 1/28/97....................................................... $ 343,603
500,000 5.62%, 1/2/97........................................................ 499,922
-----------
843,525
-----------
BANKING - 1.9%
670,000 Norwest Financial, Inc., 5.51%, 1/22/97.............................. 667,846
-----------
CONGLOMERATES - 3.7%
1,275,000 General Electric Capital Corp., 5.35%, 1/30/97....................... 1,269,505
-----------
MACHINERY/ENGINEERING - 3.5%
1,210,000 Deere (John) Capital Corp., 5.38%, 1/22/97........................... 1,206,203
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.5%
500,000 Beneficial Corp., 5.52%, 1/28/97..................................... 497,930
-----------
TECHNOLOGY - 3.7%
IBM Credit Corp.,
370,000 5.31%, 1/6/97........................................................ 369,727
900,000 5.32%, 1/6/97........................................................ 899,335
-----------
1,269,062
-----------
Total Short-Term Corporate Notes (cost - $5,754,071)................. $ 5,754,071
-----------
CORPORATE NOTE - .1%
AUTOMOTIVE - .1%
$ 2,148 Collins Industries, Inc., 8.75%, 1/11/00 (cost - $2,148)............. $ 1,995
-----------
CONVERTIBLE CORPORATE BOND - .1%
REAL ESTATE - .1%
$ 49,995 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $45,364)..................................................... $ 60,481
-----------
<CAPTION>
SHARES
------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .2%
TRANSPORTATION - .2%
825 Interpool, Inc., 5.75%, Conv. Pfd. (cost - $62,700).................. $ 84,150
-----------
COMMON STOCKS - 82.2%
ADVERTISING - 2.4%
71,900 Katz Media Group, Inc.*.............................................. $ 808,875
-----------
AEROSPACE/DEFENSE - 1.2%
19,000 Tracor, Inc.*........................................................ 403,750
-----------
</TABLE>
A-12
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
AUTOMOTIVE - 2.5%
14,400 Borg-Warner Automotive, Inc.......................................... $ 554,400
45,000 Jason, Inc.*......................................................... 292,500
-----------
846,900
-----------
BANKING - .5%
6,800 First Financial Caribbean Corp. ..................................... 188,700
-----------
BUILDING & CONSTRUCTION - 1.0%
16,400 Dal-Tile International, Inc.*........................................ 334,150
-----------
CHEMICALS - 1.1%
10,500 McWhorter Technologies, Inc.*........................................ 240,187
9,800 Sybron Chemicals, Inc.*.............................................. 156,800
-----------
396,987
-----------
COMPUTER SERVICES - 3.8%
63,867 BancTec, Inc.*....................................................... 1,317,257
-----------
DRUGS & MEDICAL PRODUCTS - 5.9%
5,000 Dentsply International, Inc. ........................................ 237,500
62,800 SpaceLabs Medical, Inc.*............................................. 1,287,400
19,700 Vital Signs, Inc. ................................................... 512,200
-----------
2,037,100
-----------
ELECTRICAL EQUIPMENT - 10.6%
9,200 Arrow Electronics, Inc.*............................................. 492,200
5,300 AVX Corp. ........................................................... 113,950
56,800 EG & G, Inc. ........................................................ 1,143,100
43,000 Exar Corp.*.......................................................... 666,500
19,100 Marshall Industries*................................................. 584,937
27,720 Oak Industries, Inc.*................................................ 637,560
-----------
3,638,247
-----------
ENERGY - 5.1%
17,948 Aquila Gas Pipeline Corp. ........................................... 284,924
3,300 Belden & Blake Corp.*................................................ 84,150
10,000 Nuevo Energy Co.*.................................................... 520,000
21,300 Petroleum Heat & Power Company, Inc. (Class A)....................... 135,788
9,640 Seagull Energy Corp.*................................................ 212,080
12,500 St. Mary Land & Exploration Co. ..................................... 310,938
4,000 Triton Energy Ltd.*.................................................. 194,000
-----------
1,741,880
-----------
</TABLE>
A-13
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH & HOSPITALS - 5.0%
65,200 Magellan Health Services, Inc*....................................... $ 1,458,850
14,800 Summit Care Corp.*................................................... 242,350
-----------
1,701,200
-----------
INSURANCE - 14.4%
9,400 ACE Ltd. ............................................................ 565,175
38,100 Capsure Holdings Corp.*.............................................. 433,388
20,600 Delphi Financial Group, Inc. ........................................ 607,700
10,900 Everest Reinsurance Holdings, Inc. .................................. 313,375
50,300 E.W. Blanch Holdings, Inc. .......................................... 1,012,287
17,200 Gryphon Holdings, Inc. .............................................. 242,950
17,000 Horace Mann Educators Corp. ......................................... 686,375
7,100 Protective Life Corp. ............................................... 283,112
18,200 United Wisconsin Services, Inc. ..................................... 477,750
6,000 W.R. Berkley Corp. .................................................. 304,500
-----------
4,926,612
-----------
MACHINERY/ENGINEERING - 2.1%
30,200 United Dominion Industries, Ltd. .................................... 709,700
-----------
MANUFACTURING - 8.0%
13,600 Alltrista Corp.*..................................................... 350,200
139,200 Baldwin Technology Co. (Class A)*.................................... 348,000
6,500 Briggs & Stratton Corp. ............................................. 286,000
4,500 Carlisle Companies, Inc. ............................................ 272,250
15,750 Crane Co. ........................................................... 456,750
59,500 Easco, Inc. ......................................................... 453,687
31,200 Exabyte Corp.*....................................................... 417,300
5,200 Greenfield Industries, Inc. ......................................... 159,250
-----------
2,743,437
-----------
MEDIA/BROADCASTING - .6%
7,500 American Radio Systems Corp.*........................................ 204,375
-----------
PAPER PRODUCTS - 2.4%
143,800 Repap Enterprises, Inc.*............................................. 399,944
21,000 Shorewood Packaging Corp.*........................................... 409,500
-----------
809,444
-----------
PRINTING & PUBLISHING - 2.9%
15,300 International Imaging Materials, Inc.*............................... 348,075
63,400 Nu-Kote Holdings, Inc. (Class A)*.................................... 649,850
-----------
997,925
-----------
</TABLE>
A-14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE - 3.6%
15,291 Cousins Properties, Inc. ............................................ $ 430,059
66 Security Capital Group, Inc. (A)..................................... 82,156
20,200 Security Capital Industrial Trust, Inc. ............................. 431,775
12,752 Security Capital Pacific Trust....................................... 291,702
-----------
1,235,692
-----------
RETAIL - .4%
8,500 Maxim Group, Inc.*................................................... 148,750
-----------
TECHNOLOGY - 4.1%
11,000 Channell Commercial Corp.*........................................... 136,125
8,000 Unitrode Corp.*...................................................... 235,000
51,400 Wang Laboratories, Inc.*............................................. 1,040,850
-----------
1,411,975
-----------
TELECOMMUNICATIONS - .6%
10,100 ECI Telecom Ltd. .................................................... 214,625
-----------
TEXTILES/APPAREL - 1.7%
19,000 Westpoint Stevens, Inc. (Class A)*................................... 567,625
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
6,000 Sylvan Foods Holdings, Inc.*......................................... 78,000
-----------
TRANSPORTATION - 1.6%
12,200 Interpool, Inc....................................................... 285,175
13,100 MTL, Inc.*........................................................... 265,275
-----------
550,450
-----------
OTHER - .5%
6,150 McGrath RentCorp..................................................... 158,363
-----------
Total Common Stocks (cost - $24,953,214)............................. $28,172,019
-----------
Total Investments (cost - $31,047,464)....................... 100.1% $34,302,683
Other Liabilities in Excess of other assets.................. (0.1) (46,012)
----- -----------
Total Net Assets............................................. 100.0% $34,256,671
===== ===========
</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>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14....... 9/16/94 $49,995 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock.......... 9/16/94 -- 66 949 1,245
</TABLE>
See accompanying notes to financial statements.
A-15
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $31,047,464)...................................... $34,302,683
Cash............................................................................ 8,758
Dividends receivable............................................................ 8,504
Interest receivable............................................................. 6,304
Receivable from fund shares sold................................................ 1,397
Other assets.................................................................... 1,207
-----------
Total Assets.................................................................. 34,328,853
-----------
LIABILITIES
Payable for fund shares redeemed................................................ 27,274
Investment advisory fee payable................................................. 23,648
Other payables and accrued expenses............................................. 21,260
-----------
Total Liabilities............................................................. 72,182
-----------
Total Net Assets.............................................................. $34,256,671
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 15,153
Paid-in-capital in excess of par................................................ 29,167,853
Accumulated undistributed net investment income................................. 226,925
Accumulated undistributed net realized gain on investments...................... 1,591,521
Net unrealized appreciation on investments...................................... 3,255,219
-----------
Total Net Assets.............................................................. $34,256,671
===========
Fund shares outstanding......................................................... 1,515,250
-----------
Net asset value per share....................................................... $ 22.61
===========
</TABLE>
See accompanying notes to financial statements.
A-16
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 227,354
Interest....................................................................... 199,837
----------
Total investment income..................................................... 427,191
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 165,735
Custodian fees (note 1G)....................................................... 22,883
Auditing, consulting and tax return preparation fees........................... 10,309
Transfer and dividend disbursing agent fees.................................... 9,357
Trustees' fees and expenses.................................................... 5,702
Reports and notices to shareholders............................................ 3,914
Legal fees..................................................................... 3,048
Miscellaneous.................................................................. 1,770
----------
Total operating expenses.................................................... 222,718
Less: Investment advisory fees waived (note 2A)............................. (17,823)
Less: Expense offset arrangement (note 1G).................................. (4,629)
----------
Net operating expenses................................................. 200,266
----------
Net investment income.................................................. 226,925
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Net realized gain on investments............................................... 1,679,412
Net change in unrealized appreciation (depreciation) on investments............ 2,142,715
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 3,822,127
----------
Net increase in net assets resulting from operations............................. $4,049,052
==========
</TABLE>
See accompanying notes to financial statements.
A-17
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 226,925 $ 211,870
Net realized gain on investments........................... 1,679,412 456,809
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,142,715 1,189,804
----------- -----------
Net increase in net assets resulting from
operations.......................................... 4,049,052 1,858,483
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (211,870) (29,623)
Net realized gains......................................... (544,700) (26,352)
----------- -----------
Total dividends and distributions to shareholders..... (756,570) (55,975)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 17,604,938 7,801,061
Reinvestment of dividends and distributions................ 756,533 55,975
Cost of shares redeemed.................................... (3,401,674) (2,865,595)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 14,959,797 4,991,441
----------- -----------
Total increase in net assets..................... 18,252,279 6,793,949
NET ASSETS
Beginning of year.......................................... 16,004,392 9,210,443
----------- -----------
End of year (including undistributed net investment income
of $226,925 and $211,870, respectively).................. $34,256,671 $16,004,392
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 837,586 427,444
Issued in reinvestment of dividends and distributions...... 38,520 3,289
Redeemed................................................... (164,530) (156,903)
----------- -----------
Net increase.......................................... 711,576 273,830
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-18
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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 Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global Equity
Portfolio, the Managed Portfolio, the Bond Portfolio, the U. S. Government
Income Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"),
a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities 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
A-19
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
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-capital or tax return of
capital. At December 31, 1996, 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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $52,990, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $23,565.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $20,565,700 and $9,055,696,
respectively.
A-20
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,909,842, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $663,423, and net unrealized appreciation for Federal income tax purposes is
$3,246,419. Federal income tax cost basis of portfolio securities is $31,056,264
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-21
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 19.91 $ 17.38 $ 17.49
----------- ----------- ----------
Income from investment operations:
Net investment income................... 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments........................ 3.45 2.37 (0.17)
----------- ----------- ----------
Total from investment operations...... 3.59 2.63 (0.11)
----------- ----------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.25) (0.05) --
Distributions to shareholders from net
realized capital gains................ (0.64) (0.05) --
----------- ----------- ----------
Total dividends and distributions to
shareholders....................... (0.89) (0.10) --
----------- ----------- ----------
Net asset value, end of period.......... $ 22.61 $ 19.91 $ 17.38
=========== =========== ==========
Total return(2)......................... 18.7% 15.2% (0.6%)
=========== =========== ==========
Net assets, end of period............... $34,256,671 $16,004,392 $ 9,210,443
----------- ----------- ----------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.74% 0.74%(3)
----------- ----------- ----------
Ratio of net investment income to
average net assets(6)................. 1.03%(4) 1.75% 1.22%(3)
----------- ----------- ----------
Portfolio turnover rate................. 50% 69% 32%
----------- ----------- ----------
Average commission rate................. $ 0.0493 -- --
----------- ----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $22,131,648.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.01% and
0.92%, respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC 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
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, 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, 1996 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 17, 1997
A-23
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 13.6%
AUTOMOTIVE - 3.8%
$6,870,000 Ford Motor Credit Co., 5.42%, 1/6/97................................ $ 6,864,828
------------
CONGLOMERATES - 4.3%
7,680,000 General Electric Capital Corp., 5.39%, 1/7/97....................... 7,673,101
------------
INSURANCE - .3%
555,000 Marsh & McLennan Co., Inc., 6.55%, 1/2/97........................... 554,899
------------
MISCELLANEOUS FINANCIAL SERVICES - 5.2%
Household Finance Corp.,
130,000 5.34%, 1/7/97....................................................... 129,884
3,300,000 5.45%, 1/7/97....................................................... 3,297,003
6,000,000 Merrill Lynch & Co., Inc., 5.70%, 1/6/97............................ 5,995,250
------------
9,422,137
------------
Total Short-Term Corporate Notes (cost - $24,514,965)............... $ 24,514,965
------------
U.S. TREASURY NOTES AND BONDS - .9%
$ 700,000 6.25%, 8/15/23...................................................... $ 656,250
630,000 7.875%, 4/15/98..................................................... 646,437
297,500 7.875%, 8/15/01..................................................... 317,117
------------
Total U.S. Treasury Notes and Bonds (cost - $1,514,907)............. $ 1,619,804
------------
CONVERTIBLE CORPORATE BOND - .4%
REAL ESTATE - .4%
$ 614,371 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $557,508)................................................... $ 743,231
------------
<CAPTION>
SHARES
- ----------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .0%
RETAIL - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............ $ 45,533
------------
COMMON STOCKS - 85.4%
AEROSPACE/DEFENSE - 7.5%
43,200 Lockheed Martin Corp. .............................................. $ 3,952,800
150,000 McDonnell Douglas Corp. ............................................ 9,600,000
------------
13,552,800
------------
BANKING - 12.3%
80,000 Citicorp............................................................ 8,240,000
10,000 First Empire State Corp. ........................................... 2,880,000
41,200 Wells Fargo & Co. .................................................. 11,113,700
------------
22,233,700
------------
</TABLE>
A-24
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BUILDING & CONSTRUCTION - .3%
31,680 Newport News Shipbuilding Inc.*..................................... $ 475,200
------------
CHEMICALS - 8.4%
83,000 du Pont (E.I.) de Nemours & Co. .................................... 7,833,125
100,000 Hercules, Inc. ..................................................... 4,325,000
80,000 Monsanto Co. ....................................................... 3,110,000
------------
15,268,125
------------
CONGLOMERATES - 4.1%
164,200 Tenneco, Inc. ...................................................... 7,409,525
------------
CONSUMER PRODUCTS - 3.6%
236,200 Mattel, Inc. ....................................................... 6,554,550
------------
DRUGS & MEDICAL PRODUCTS - 3.1%
130,000 Becton, Dickinson & Co. ............................................ 5,638,750
------------
ENERGY - 2.7%
55,300 Triton Energy Ltd.*................................................. 2,682,050
73,091 Union Pacific Resources Group, Inc. ................................ 2,137,912
------------
4,819,962
------------
FOOD SERVICES - 3.2%
127,700 McDonald's Corp. ................................................... 5,778,425
------------
INSURANCE - 6.6%
60,000 ACE Ltd. ........................................................... 3,607,500
138,600 EXEL Ltd. .......................................................... 5,249,475
15,400 Transamerica Corp. ................................................. 1,216,600
41,200 Travelers Group, Inc. .............................................. 1,869,450
------------
11,943,025
------------
MANUFACTURING - 2.3%
54,700 Catepillar, Inc..................................................... 4,116,175
------------
METALS & MINING - 3.2%
196,100 Freeport McMoRan Copper & Gold (Class B)............................ 5,858,487
------------
MISCELLANEOUS FINANCIAL SERVICES - 12.1%
57,200 American Express Co. ............................................... 3,231,800
161,000 Countrywide Credit Industries, Inc. ................................ 4,608,625
77,500 Federal Home Loan Mortgage Corp. ................................... 8,534,687
145,900 Federal National Mortgage Assoc. ................................... 5,434,775
------------
21,809,887
------------
PAPER PRODUCTS - 1.9%
80,000 Champion International Corp. ....................................... 3,460,000
------------
PRINTING/PUBLISHING - .8%
45,600 Donnelly (R.R.) & Sons Co. ......................................... 1,430,700
------------
</TABLE>
A-25
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RAILROADS - 2.9%
86,300 Union Pacific Corp. ................................................ $ 5,188,788
------------
REAL ESTATE - .6%
811 Security Capital Group, Inc. (A).................................... 1,009,517
------------
TECHNOLOGY - 5.9%
29,300 Intel Corp. ........................................................ 3,836,469
190,600 National Semiconductor Corp.*....................................... 4,645,875
75,000 Unitrode Corp.*..................................................... 2,203,125
------------
10,685,469
------------
TELECOMMUNICATIONS - 3.9%
30,000 Sprint Corp. ....................................................... 1,196,250
456,000 Tele-Communications, Inc. (Class A) *............................... 5,956,500
------------
7,152,750
------------
Total Common Stocks (cost - $115,007,880)........................ $154,385,835
------------
Total Investments (cost - $141,697,788)................... 100.3% $181,309,368
Other Liabilities in Excess of Other Assets............... (0.3) (581,274)
----- ------------
Total Net Assets........................................ 100.0% $180,728,094
===== ============
</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>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14 9/16/94 $614,371 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock 9/16/94 -- 811 949 1,245
</TABLE>
A-26
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $141,697,788).................................... $181,309,368
Cash........................................................................... 6,937
Receivable from investments sold............................................... 1,047,817
Receivable from fund shares sold............................................... 329,292
Dividends receivable........................................................... 123,034
Interest receivable............................................................ 110,591
Other assets................................................................... 7,932
------------
Total Assets................................................................. 182,934,971
------------
LIABILITIES
Payable for investments purchased.............................................. 1,897,083
Investment advisory fee payable................................................ 137,907
Payable for fund shares redeemed............................................... 132,215
Other payables and accrued expenses............................................ 39,672
------------
Total Liabilities............................................................ 2,206,877
------------
Total Net Assets............................................................. $180,728,094
============
NET ASSETS
Par value ($.01 per share)..................................................... $ 49,914
Paid-in-capital in excess of par............................................... 132,265,145
Accumulated undistributed net investment income................................ 2,161,818
Accumulated undistributed net realized gain on investments..................... 6,639,637
Net unrealized appreciation on investments..................................... 39,611,580
------------
Total Net Assets............................................................. $180,728,094
============
Fund shares outstanding........................................................ 4,991,370
------------
Net asset value per share...................................................... $ 36.21
============
</TABLE>
See accompanying notes to financial statements.
A-27
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 1,924,873
Interest...................................................................... 1,333,194
-----------
Total investment income.................................................... 3,258,067
-----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................ 972,381
Custodian fees (note 1G)...................................................... 31,020
Trustees' fees and expenses................................................... 25,790
Reports and notices to shareholders........................................... 21,135
Auditing, consulting and tax return preparation fees.......................... 13,434
Transfer and dividend disbursing agent fees................................... 11,151
Legal fees.................................................................... 9,476
Miscellaneous................................................................. 23,141
-----------
Total operating expenses................................................... 1,107,528
Less: Investment advisory fees waived (note 2A)............................ (8,220)
Less: Expense offset arrangement (note 1G)................................. (3,060)
-----------
Net operating expenses................................................ 1,096,248
-----------
Net investment income................................................. 2,161,819
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments.............................................. 6,639,637
Net change in unrealized appreciation (depreciation) on investments........... 18,285,659
-----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments............................................................... 24,925,296
-----------
Net increase in net assets resulting from operations............................ $27,087,115
===========
</TABLE>
See accompanying notes to financial statements.
A-28
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 2,161,819 $ 1,378,069
Net realized gain on investments........................... 6,639,637 1,023,914
Net change in unrealized appreciation (depreciation) on
investments.............................................. 18,285,659 23,901,028
------------ -----------
Net increase in net assets resulting from
operations.......................................... 27,087,115 26,303,011
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (1,378,070) (360,801)
Net realized gains......................................... (878,874) --
------------ -----------
Total dividends and distributions to shareholders..... (2,256,944) (360,801)
------------ -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 79,297,599 27,913,098
Reinvestment of dividends and distributions................ 2,256,944 360,801
Cost of shares redeemed.................................... (24,844,767) (9,971,333)
------------ -----------
Net increase in net assets from fund share
transactions........................................ 56,709,776 18,302,566
------------ -----------
Total increase in net assets..................... 81,539,947 44,244,776
NET ASSETS
Beginning of year.......................................... 99,188,147 54,943,371
------------ -----------
End of year (including undistributed net investment income
of $2,161,818 and $1,378,069, respectively).............. $ 180,728,094 $99,188,147
============ ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 2,403,077 1,016,970
Issued in reinvestment of dividends and distributions...... 73,016 15,866
Redeemed................................................... (775,472) (379,452)
------------ -----------
Net increase.......................................... 1,700,621 653,384
============ ===========
</TABLE>
See accompanying notes to financial statements.
A-29
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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 Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio (the "Portfolio"), the Bond Portfolio, the U. S. Government Income
Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities 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 "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
A-30
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
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-capital or tax return of capital. At December 31, 1996, 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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $107,123, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $61,183.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $84,349,690 and $30,263,820,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $40,341,986, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $730,406 and net unrealized appreciation for Federal income tax purposes is
$39,611,580. Federal income tax cost basis of portfolio securities is
$141,697,788 at December 31, 1996.
A-31
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-32
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 30.14 $ 20.83 $ 21.80
----------- ---------- ---------
Income from investment operations:
Net investment income.................. 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments....................... 6.31 9.02 (1.11)
----------- ---------- ---------
Total from investment operations..... 6.74 9.44 (0.97)
----------- ---------- ---------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income.................... (0.41) (0.13) --
Distributions to shareholders from net
realized capital gains............... (0.26) -- --
----------- ---------- ---------
Total dividends and distributions to
shareholders...................... (0.67) (0.13) 0.00
----------- ---------- ---------
Net asset value, end of period......... $ 36.21 $ 30.14 $ 20.83
=========== ========== =========
Total return(2)........................ 22.8% 45.6% (4.4%)
=========== ========== =========
Net assets, end of period.............. $ 180,728,094 $99,188,147 $54,943,371
----------- ---------- ---------
Ratio of net operating expenses to
average net assets(6)................ 0.84%(4,5) 0.66% 0.66%(3)
----------- ---------- ---------
Ratio of net investment income to
average net assets(6)................ 1.66%(4) 1.85% 2.34%(3)
----------- ---------- ---------
Portfolio turnover rate................ 27% 22% 8%
----------- ---------- ---------
Average commission rate................ $ 0.0592 -- --
----------- ---------- ---------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $130,347,107.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 0.85% and
1.65%, respectively, for the year ended December 31, 1996, 0.74% and 1.77%,
respectively, for the year ended December 31, 1995 and 0.96% and 2.04%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC 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
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, 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, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-34
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. TREASURY NOTES AND BONDS - 35.6%
$175,000.. 5.75%, 10/31/97...................................................... $ 175,247
525,000.. 6.50%, 10/15/06...................................................... 527,872
175,000.. 7.25%, 8/15/22....................................................... 185,117
----------
Total U.S. Treasury Notes and Bonds (cost - $911,980)................ $ 888,236
----------
MORTGAGE-RELATED SECURITIES - 34.5%
$ 80,682 Federal Home Loan Mortgage Corp.,
8.50%, 10/15/19...................................................... $ 81,942
Federal National Mortgage Assoc.,
177,953 6.50%, 5/1/26........................................................ 169,723
196,302 7.00%, 1/1/10........................................................ 197,283
154,262 8.00%, 8/1/24........................................................ 157,492
8,207 9.00%, 8/1/02........................................................ 8,553
20,111 9.50%, 12/1/06....................................................... 21,135
73,983 9.50%, 12/1/19....................................................... 80,248
141,214 Government National Mortgage Assoc.,
8.50%, 3/15/25....................................................... 146,684
----------
Total Mortgage-Related Securities (cost - $841,948).................. $ 863,060
----------
CORPORATE NOTES & BONDS - 26.5%
AUTOMOTIVE - 4.3%
$ 100,000 General Motors Acceptance Corp., 8.25%, 2/24/04...................... $ 107,161
----------
CONGLOMERATES - 4.3%
100,000 General Electric Capital Corp., 8.375%, 3/1/01....................... 106,652
----------
MISCELLANEOUS FINANCIAL SERVICES - 17.9%
125,000 Associates Corp., N.A., 5.25%, 3/30/00............................... 120,684
100,000 BarclaysAmerican Corp., 7.875%, 8/15/98.............................. 102,535
100,000 Household Finance Corp., 6.875%, 3/1/03.............................. 100,509
125,000 International Lease Finance Corp., 6.125%, 11/1/99................... 123,714
----------
447,442
----------
Total Corporate Notes & Bonds (cost - $648,295)...................... $ 661,255
----------
Total Investments (cost - $2,402,223)....................... 96.6% $2,412,551
Other Assets in Excess of Other Liabilities................. 3.4 84,895
----- ----------
Total Net Assets............................................ 100.0% $2,497,446
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-35
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $2,402,223)........................................ $2,412,551
Cash............................................................................. 71,315
Interest receivable.............................................................. 32,400
Other assets..................................................................... 393
----------
Total Assets................................................................... 2,516,659
----------
LIABILITIES
Investment advisory fee payable.................................................. 3,750
Other payables and accrued expenses.............................................. 15,463
----------
Total Liabilities.............................................................. 19,213
----------
Total Net Assets............................................................... $2,497,446
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 2,629
Paid-in-capital in excess of par................................................. 2,473,650
Accumulated undistributed net realized gain on investments....................... 10,839
Net unrealized appreciation on investments....................................... 10,328
----------
Total Net Assets............................................................... $2,497,446
==========
Fund shares outstanding.......................................................... 262,938
----------
Net asset value per share........................................................ $ 9.50
==========
</TABLE>
See accompanying notes to financial statements.
A-36
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................................... $ 323,750
--------
OPERATING EXPENSES
Investment advisory fees (note 2).............................................. 24,157
Custodian fees (note 1G)....................................................... 17,341
Auditing, consulting and tax return preparation fees........................... 10,226
Transfer and dividend disbursing agent fees.................................... 9,082
Legal fees..................................................................... 1,918
Reports and notices to shareholders............................................ 1,335
Miscellaneous.................................................................. 3,917
--------
Total operating expenses.................................................... 67,976
Less: Investment advisory fees waived (note 2).............................. (18,557)
Less: Expense offset arrangement (note 1G).................................. (1,195)
--------
Net operating expenses................................................. 48,224
--------
Net investment income.................................................. 275,526
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 10,977
Net change in unrealized appreciation (depreciation) on investments............ (184,990)
--------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ (174,013)
--------
Net increase in net assets resulting from operations............................. $ 101,513
========
</TABLE>
See accompanying notes to financial statements.
A-37
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 275,526 $ 244,328
Net realized gain on investments........................... 10,977 79,769
Net change in unrealized appreciation (depreciation) on
investments ............................................. (184,990) 269,489
----------- -----------
Net increase in net assets resulting from
operations.......................................... 101,513 593,586
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (275,526) (244,328)
Net realized gains......................................... (75,648) --
----------- -----------
Total dividends and distributions to shareholders..... 351,174 (244,328)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 1,066,456 1,574,585
Reinvestment of dividends and distributions................ 350,959 242,735
Cost of shares redeemed.................................... (2,954,763) (1,537,477)
----------- -----------
Net increase (decrease) in net assets from fund share
transactions........................................ (1,537,348) 279,843
----------- -----------
Total increase (decrease) in net assets.......... (1,787,009) 629,101
NET ASSETS
Beginning of year.......................................... 4,284,455 3,655,354
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 2,497,446 $ 4,284,455
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 107,627 165,081
Issued in reinvestment of dividends and distributions...... 36,654 25,011
Redeemed................................................... (310,084) (158,718)
----------- -----------
Net increase (decrease)............................... (165,803) 31,374
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-38
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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 Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio (the "Portfolio"), the U. S. Government Income
Portfolio and the Money Market Portfolio. The Trust filed an application with
the Securities and Exchange Commission for an Order approving the substitution
of shares of the U.S. Government series for shares of the Bond series. Notice of
the Application was published January 29, 1997. If the order is issued, the
substitution will be effected shortly thereafter. OpCap Advisors, (the
"Adviser"), a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as
the Trust's investment adviser. The Trust is an investment vehicle for variable
annuity and variable life insurance contracts of various life insurance
companies, and qualified pension and retirement plans. 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) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. 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
A-39
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
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-capital or tax return of capital. At December 31, 1996,
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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
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 .50%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $6,205,620 and $7,630,072,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $35,184, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $24,856 and net unrealized appreciation for Federal income tax purposes is
$10,328. Federal income tax cost basis of portfolio securities is $2,402,223 at
December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for
A-40
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT (CONTINUED)
PIMCO Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire
the one-third managing general partner interest in Oppenheimer Capital and the
1.0% general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-41
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 9.99 $ 9.20 $ 9.40
Income from investment operations:
Net investment income................... 0.54 0.58 0.17
Net realized and unrealized gain (loss)
on investments........................ (0.34) 0.79 (0.20)
---------- ---------- ----------
Total from investment operations...... 0.20 1.37 (0.03)
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.54) (0.58) (0.17)
Distributions to shareholders from net
realized capital gains................ (0.15) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.69) (0.58) (0.17)
---------- ---------- ----------
Net asset value, end of period.......... $ 9.50 $ 9.99 $ 9.20
========== ========== ==========
Total return(2)......................... 2.2% 15.2% (0.3%)
========== ========== ==========
Net assets, end of period............... $ 2,947,446 $ 4,284,455 $ 3,655,354
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.02%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 5.70%(4) 5.95% 6.26%(3)
---------- ---------- ----------
Portfolio turnover rate................. 138% 134% 7%
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,831,393.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.41% and
5.29%, respectively, for the year ended December 31, 1996, 1.52% and 5.43%,
respectively, for the year ended December 31, 1995 and 2.05% and 5.21%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
OCC 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
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, 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, 1996 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 17, 1997
A-43
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 28.5%
Federal Home Loan Bank,
$ 105,000 5.21%, 2/13/97..................................................... $ 104,347
125,000 5.42%, 1/2/97...................................................... 124,981
Federal Home Loan Mortgage Corp.,
30,000 5.21%, 1/27/97..................................................... 29,887
615,000 5.40%, 1/2/97...................................................... 614,908
120,000 5.42%, 1/3/97...................................................... 119,964
195,000 5.52%, 1/8/97...................................................... 194,791
Federal National Mortgage Assoc.,
10,000 5.36%, 2/18/97..................................................... 9,928
305,000 5.42%, 1/17/97..................................................... 304,265
----------
Total U.S. Government Agency Notes (amortized cost - $1,503,071)... $1,503,071
----------
SHORT-TERM CORPORATE NOTES - 71.6%
AUTOMOTIVE - 7.2%
$ 130,000 Daimer-Benz North America Corp., 5.30%, 3/14/97.................... $ 128,622
125,000 Ford Motor Credit Co., 5.41%, 3/31/97.............................. 123,328
130,000 General Motors Acceptance Corp., 5.30%, 6/23/97.................... 126,689
----------
378,639
----------
BANKING - 19.8%
150,000 Abbey National North America, 5.33%, 3/11/97....................... 148,468
150,000 ABN-Amro North America Finance Inc., 5.40%, 3/6/97................. 148,560
100,000 Bayerische Vereinsbank AG, 5.33%, 1/8/97........................... 99,896
100,000 Commerzbank U.S. Finance Inc., 5.33%, 2/28/97...................... 99,141
150,000 Morgan (J.P.) & Co., Inc., 5.36%, 1/7/97........................... 149,866
110,000 Societe Generale N.A. Inc., 5.50%, 2/18/97......................... 110,000
150,000 Svenska Handelsbanken Inc., 5.53%, 1/16/97......................... 149,654
140,000 Toronto-Dominion Holdings USA Inc., 5.30%, 2/5/97.................. 139,279
----------
1,044,864
----------
CHEMICALS - 2.8%
150,000 U.S. Borax & Chemical Corp., 5.42%, 2/24/97........................ 148,781
----------
CONGLOMERATES - 2.1%
110,000 General Electric Capital Corp., 5.45%, 2/26/97..................... 109,067
----------
ENTERTAINMENT - 2.0%
105,000 Walt Disney Co., 5.30%, 1/6/97..................................... 104,923
----------
MACHINERY/ENGINEERING - 5.1%
120,000 Deere (John) Capital Corp., 5.30%, 4/14/97......................... 118,180
150,000 Pitney Bowes Credit Corp., 5.70%, 1/15/97.......................... 149,668
----------
267,848
----------
</TABLE>
A-44
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------- ----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 22.4%
$ 129,000 American Express Credit Corp., 5.30%, 1/2/97....................... $ 128,981
110,000 Beneficial Corp., 5.31%, 7/14/97................................... 106,852
140,000 Cheltenham & Gloucester Building Society PLC, 5.26%, 3/24/97....... 138,323
100,000 Eksportfinans A/S, 5.39%, 2/18/97.................................. 99,281
150,000 Goldman Sachs Group L.P., 5.43%, 1/13/97........................... 149,729
150,000 Household Finance Corp., 5.42%, 1/6/97............................. 149,887
130,000 Merrill Lynch & Co., Inc., 5.34%, 1/21/97.......................... 129,614
130,000 Morgan Stanley Group, Inc., 5.43%, 1/15/97......................... 129,726
150,000 USAA Capital Corp., 5.32%, 2/24/97................................. 148,803
----------
1,181,196
----------
SOVEREIGN - 2.8%
150,000 Sweden (Kingdom of), 5.30%, 2/3/97................................. 149,271
----------
TECHNOLOGY - 5.2%
130,000 IBM Credit Corp., 5.28%, 3/17/97................................... 128,570
150,000 Motorola Credit Corp., 5.23%, 2/20/97.............................. 148,910
----------
277,480
----------
TELECOMMUNICATIONS - 2.2%
120,000 Ameritech Corp., 5.30%, 3/31/97.................................... 118,428
----------
Total Short-Term Corporate Notes (amortized cost - $3,780,497)..... $3,780,497
----------
Total Investments (amortized cost - $5,283,568)............ 100.1% $5,283,568
Other Liabilities in Excess of Other Assets................ (0.1) (4,526)
----- ----------
Total Net Assets........................................... 100.0% $5,279,042
===== =========
</TABLE>
See accompanying notes to financial statements.
A-45
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost - $5,283,568).............................. $5,283,568
Cash............................................................................. 10,094
Interest receivable.............................................................. 2,235
Other assets..................................................................... 331
----------
Total Assets................................................................... 5,296,228
----------
LIABILITIES
Investment advisory fee payable.................................................. 1,090
Payable for fund shares redeemed................................................. 446
Other payables and accrued expenses.............................................. 15,650
----------
Total Liabilities.............................................................. 17,186
----------
Total Net Assets............................................................... $5,279,042
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 52,791
Paid-in-capital in excess of par................................................. 5,226,264
Accumulated net realized loss on investments..................................... (13)
----------
Total Net Assets............................................................... $5,279,042
==========
Fund shares outstanding.......................................................... 5,279,054
----------
Net asset value per share........................................................ $ 1.00
==========
</TABLE>
See accompanying notes to financial statements.
A-46
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $222,268
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 16,388
Custodian fees (note 1G)........................................................ 10,779
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,066
Legal fees...................................................................... 1,923
Reports and notices to shareholders............................................. 951
Miscellaneous................................................................... 3,703
--------
Total operating expenses..................................................... 53,119
Less: Investment advisory fees waived (note 2)............................... (11,550)
Less: Expense offset arrangement (note 1G)................................... (717)
--------
Net operating expenses.................................................. 40,852
--------
Net investment income................................................... 181,416
REALIZED LOSS ON INVESTMENTS - NET
Net realized loss on investments................................................ (14)
--------
Net increase in net assets resulting from operations.............................. $181,402
========
</TABLE>
See accompanying notes to financial statements.
A-47
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 181,416 $ 203,353
Net realized gain (loss) on investments.................... (14) 47
----------- -----------
Net increase in net assets resulting from
operations.......................................... 181,402 203,400
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (181,416) (203,353)
Net realized gains......................................... (46) --
----------- -----------
Total dividends and distributions to shareholders..... (181,462) (203,353)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 6,146,104 4,346,773
Reinvestment of dividends and distributions................ 182,704 201,653
Cost of shares redeemed.................................... (5,405,790) (3,711,915)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 923,018 836,511
----------- -----------
Total increase in net assets..................... 922,958 836,558
NET ASSETS
Beginning of year.......................................... 4,356,084 3,519,526
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 5,279,042 $ 4,356,084
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 6,146,104 4,346,773
Issued in reinvestment of dividends and distributions...... 182,704 201,653
Redeemed................................................... (5,405,790) (3,711,915)
----------- -----------
Net increase.......................................... 923,018 836,511
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-48
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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 Trust is comprised of seven portfolios: 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 (the "Portfolio"). OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. 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. The amortized cost method involves valuing a security at cost on
the date of purchase and thereafter assuming a constant dollar amortization to
maturity of the difference between the principal amount due at maturity and the
initial cost of the security.
(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. Federal income tax cost basis of
portfolio securities is the same as for financial reporting purposes.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. 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.
(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 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.
A-49
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with the
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
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 .40%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales/maturities of
investment securities, were $46,988,455 and $46,273,740, respectively.
(4) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-50
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................... 0.04 0.05 0.01
Net realized gain (loss) on
investments........................... (0.00) 0.00 --
---------- ---------- ----------
Total from investment operations...... 0.04 0.05 0.01
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.04) (0.05) (0.01)
Distributions to shareholders from net
realized capital gains................ (0.00) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.04) (0.05) (0.01)
---------- ---------- ----------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total return(2)......................... 4.5% 5.1% 1.2%
========== ========== ==========
Net assets, end of period............... $ 5,279,042 $ 4,356,084 $ 3,519,526
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.01%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 4.43%(4) 4.94% 4.13%(3)
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,097,126.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.30% and
4.13%, respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC 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 seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, 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, 1996 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 17, 1997
A-52
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------
<C> <S> <C> <C>
U.S. TREASURY NOTES - 36.3%
$ 100,000 5.75%, 10/31/00.................................................... $ 98,672
475,000 6.50%, 8/15/97..................................................... 477,822
390,000 6.50%, 10/15/06.................................................... 392,133
125,000 7.25%, 5/15/04..................................................... 131,523
140,000 7.375%, 11/15/97................................................... 142,012
----------
Total U.S. Treasury Notes (cost - $1,242,934)...................... $1,242,162
----------
U.S. GOVERNMENT AGENCY NOTES - 62.0%
$ 75,000 Federal Farm Credit Bank, 8.65%, 10/1/99............................. $ 79,629
Federal Home Loan Bank,
60,000 6.94%, 3/14/97..................................................... 60,169
100,000 8.09%, 12/28/04.................................................... 108,781
155,000 8.60%, 8/25/99..................................................... 164,325
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03..................................................... 172,758
125,000 7.75%, 11/7/01..................................................... 131,973
150,000 8.115%, 1/31/05.................................................... 163,266
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98.................................................... 59,597
20,000 5.46%, 1/3/97...................................................... 19,994
20,000 5.46%, 1/7/97...................................................... 19,982
125,000 8.50%, 2/1/05...................................................... 131,426
230,000 8.80%, 7/25/97..................................................... 234,133
55,000 9.20%, 6/10/97..................................................... 55,798
150,000 9.20%, 9/11/00..................................................... 164,274
150,000 Private Export Funding Corp., 9.10%, 10/30/98........................ 157,868
Student Loan Marketing Assoc.
75,000 7.00%, 3/3/98...................................................... 76,008
100,000 7.20%, 11/9/00..................................................... 103,047
Tennessee Valley Authority,
150,000 6.00%, 11/1/00..................................................... 148,430
65,000 8.375%, 10/1/99.................................................... 68,554
----------
Total U.S. Government Agency Notes (cost - $2,103,674)............. $2,120,012
----------
Total Investments (cost - $3,346,608)....................... 98.3% $3,362,174
Other Assets in Excess of Other Liabilities................. 1.7 59,824
----- ----------
Total Net Assets............................................ 100.0% $3,421,998
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-53
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $3,346,608)....................................... $3,362,174
Cash............................................................................ 11,662
Interest receivable............................................................. 63,513
Receivable from fund shares sold................................................ 6,026
Other assets.................................................................... 203
----------
Total Assets.................................................................. 3,443,578
----------
LIABILITIES
Investment advisory fee payable................................................. 4,337
Payable for fund shares redeemed................................................ 1,988
Other payables and accrued expenses............................................. 15,255
----------
Total Liabilities............................................................. 21,580
----------
Total Net Assets.............................................................. $3,421,998
==========
NET ASSETS
Par value ($.01 per share)...................................................... $ 3,297
Paid-in-capital in excess of par................................................ 3,411,026
Accumulated net realized loss on investments.................................... (7,891)
Net unrealized appreciation on investments...................................... 15,566
----------
Total Net Assets.............................................................. $3,421,998
==========
Fund shares outstanding......................................................... 329,735
----------
Net asset value per share....................................................... $ 10.38
==========
</TABLE>
See accompanying notes to financial statements.
A-54
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $153,307
--------
OPERATING EXPENSES
Custodian fees (note 1G)........................................................ 17,308
Investment advisory fees (note 2)............................................... 14,797
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,044
Legal fees...................................................................... 1,753
Reports and notices to shareholders............................................. 737
Miscellaneous................................................................... 3,802
--------
Total operating expenses..................................................... 57,750
Less: Investment advisory fees waived and expenses assumed (note 2).......... (34,102)
Less: Expense offset arrangement (note 1G)................................... (394)
--------
Net operating expenses.................................................. 23,254
--------
Net investment income................................................... 130,053
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized loss on investments................................................ (7,891)
Net change in unrealized appreciation (depreciation) on investments............. (26,424)
--------
Net realized loss and change in unrealized appreciation (depreciation) on
investments................................................................. (34,315)
--------
Net increase in net assets resulting from operations.............................. $ 95,738
========
</TABLE>
See accompanying notes to financial statements.
A-55
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income..................................... $ 130,053 $ 46,710
Net realized gain (loss) on investments................... (7,891) 7,795
Net change in unrealized appreciation (depreciation) on
investments............................................. (26,424) 41,990
----------------- --------------------
Net increase in net assets resulting from
operations......................................... 95,738 96,495
----------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (130,053) (46,710)
Net realized gains........................................ -- (7,795)
----------------- --------------------
Total dividends and distributions to shareholders.... (130,053) (54,505)
----------------- --------------------
FUND SHARE TRANSACTIONS
Net proceeds from sales................................... 2,180,216 1,442,074
Reinvestment of dividends and distributions............... 130,663 53,894
Cost of shares redeemed................................... (297,024) (95,500)
----------------- --------------------
Net increase in net assets from fund share
transactions....................................... 2,013,855 1,400,468
----------------- --------------------
Total increase in net assets.................... 1,979,540 1,442,458
NET ASSETS
Beginning of period....................................... 1,442,458 0
----------------- --------------------
End of period (including undistributed net investment
income of $0 and $0, respectively)...................... $ 3,421,998 $1,442,458
============== ===============
SHARES ISSUED AND REDEEMED
Issued.................................................... 209,939 139,749
Issued in reinvestment of dividends and distributions..... 12,589 5,140
Redeemed.................................................. (28,592) (9,090)
----------------- --------------------
Net increase......................................... 193,936 135,799
============== ===============
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-56
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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-ended 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 Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio (the
"Portfolio") and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The U.S. Government Income Portfolio one of the Trust's
seven portfolios, commenced operations on January 3, 1995. The Trust is an
investment vehicle for variable annuity and variable life insurance contracts of
various life insurance companies, and qualified pension and retirement plans.
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) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. 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
A-57
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
accumulated earnings and profits for Federal income tax purposes, they are
reported as distributions of paid-in-capital or tax return of capital. At
December 31, 1996, 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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
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 voluntarily agreed to waive that portion of the advisory
fee and to assume any necessary expenses to limit total operating expenses of
the Portfolio to 1.00% (net of expense offsets) of average daily net assets on
an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $2,669,452 and $705,798,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $22,879, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $9,001 and net unrealized appreciation for Federal income tax purposes is
$13,878. Federal income tax cost basis of portfolio securities is $3,348,296 at
December 31, 1996.
(5) CAPITAL LOSS CARRY-FORWARD
For the year ended December 31, 1996, the Portfolio incurred net realized
capital losses of $6,203 which are available as a reduction against future net
capital gains realized before the end of fiscal year 2004 to the extent provided
by regulations. To the extent that this capital loss carry-forward is used to
offset future net capital gains, it is possible that gains so offset will not be
distributed to shareholders.
(6) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock
A-58
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(6) SUBSEQUENT EVENT (CONTINUED)
Exchange and of which Oppenheimer Financial Corp. is the sole general partner,
owns the remaining two-thirds interest. On February 13, 1997, PIMCO Advisors
L.P., a registered investment adviser, signed a definitive agreement with
Oppenheimer Group, Inc. and its subsidiary Oppenheimer Financial Corp. for PIMCO
Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire the
one-third managing general partner interest in Oppenheimer Capital and the 1.0%
general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-59
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 10.62 $ 10.00
---------- ----------
Income from investment operations:
Net investment income.................................. 0.55 0.60
Net realized and unrealized gain (loss) on
investments.......................................... (0.24) 0.68
---------- ----------
Total from investment operations..................... 0.31 1.28
---------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.55) (0.60)
Distributions to shareholders from net realized capital
gains................................................ -- (0.06)
---------- ----------
Total dividends and distributions to shareholders.... (0.55) (0.66)
---------- ----------
Net asset value, end of period......................... $ 10.38 $ 10.62
========== ==========
Total return(2)........................................ 3.0% 13.1%
========== ==========
Net assets, end of period.............................. $ 3,421,998 $1,442,458
---------- ----------
Ratio of net operating expenses to average net
assets(6)............................................ 0.96%(4,5) 0.75%(3)
---------- ----------
Ratio of net investment income to average net
assets(6)............................................ 5.27%(4) 5.75%(3)
---------- ----------
Portfolio turnover rate................................ 31% 65%
---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $2,466,244.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived all of its fees and
assumed a portion of the Portfolio's operating expenses. Additionally, for
the year ended December 31, 1996, the Portfolio benefited from an expense
offset arrangement with its custodian bank. If such waivers, assumptions and
expense offsets had not been in effect, the ratios of net operating expenses
to average daily net assets and the ratios of net investment income to
average daily net assets would have been 2.34% and 3.87%, respectively, for
the year ended December 31, 1996, and 4.73% and 1.77%, annualized,
respectively for the period January 3, 1995 (commencement of operations) to
December 31, 1995.
A-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC 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 seven portfolios constituting OCC Accumulation Trust,
hereafter referred to as the "Portfolio") at December 31, 1996, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and 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 audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-61
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 9.3%
US$1,585,000 Federal Home Loan Bank, 5.25%, 1/2/97 (cost - $1,584,769).......... $ 1,584,769
-------
CONVERTIBLE CORPORATE NOTES - 1.1%
HONG KONG - .2%
BANKING - .2%
40,000 Bangkok Bank Public Co., 3.25%, 3/3/04............................. $ 39,150
-------
JAPAN - .9%
BANKING - .9%
130,000 Mitsubishi Bank Ltd., 3.50%, 11/30/02.............................. 138,450
-------
Total Convertible Corporate Notes (cost-$188,795).................. $ 177,600
-------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 87.2%
AUSTRALIA - .6%
PAPER PRODUCTS - .6%
17,000 WMC Ltd. .......................................................... $ 107,154
-------
AUSTRIA - .3%
AIRPORTS - .3%
900 Flughafen Wein AG.................................................. 45,879
-------
BERMUDA - 4.5%
INSURANCE - 4.5%
12,200 ACE Ltd. .......................................................... 733,525
800 EXEL Ltd. ......................................................... 30,300
-------
763,825
-------
BRAZIL - 1.5%
BANKING - .6%
6,000 Bompreco Supermecados Norde*....................................... 108,000
-------
PAPER PRODUCTS - .3%
6,200 Aracruz Celulose SA................................................ 51,150
-------
TEXTILES/APPAREL - .3%
150 Compahnia de Tecidos Norte de Minas-Conteminas..................... 47,870
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
90 Compahnia Cervejaria Brahma........................................ 49,196
-------
Total Brazilian Common Stocks...................................... 256,216
-------
CANADA - 2.1%
ELECTRONICS - .5%
11,000 CAE, Inc. ......................................................... 83,145
-------
</TABLE>
A-62
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
ENERGY - .6%
1,600 Precision Drilling Corp.*.......................................... $ 55,737
1,100 Suncor, Inc. ...................................................... 45,468
-------
101,205
-------
PRINTING/PUBLISHING - .3%
2,150 Thomson Corp. ..................................................... 47,261
-------
SECURITY/INVESTIGATION - .4%
3,500 Unican Security Systems Ltd. ...................................... 77,704
-------
TRANSPORTATION - .3%
1,875 Canadian Pacific Ltd. ............................................. 49,638
-------
Total Canadian Common Stocks....................................... 358,953
-------
CZECHOSLOVAKIA - .5%
TELECOMMUNICATIONS - .5%
700 SPT Telekom AS*.................................................... 87,149
-------
FINLAND - 1.7%
DRUGS/MEDICAL PRODUCTS - .3%
7,600 Oy Tamro AB........................................................ 50,722
-------
TELECOMMUNICATIONS - 1.4%
4,000 Oy Nokia AB........................................................ 231,304
-------
Total Finnish Common Stocks........................................ 282,026
-------
FRANCE - 3.5%
ELECTRONICS - .3%
1,159 Schneider SA....................................................... 53,589
-------
ENERGY - .7%
1,516 Total SA........................................................... 123,302
-------
INSURANCE - 1.1%
1,500 AXA................................................................ 95,404
2,400 Scor SA............................................................ 84,417
-------
179,821
-------
MANUFACTURING - .4%
1,356 Michelin (CGDE).................................................... 73,203
-------
MISCELLANEOUS FINANCIAL SERVICES - .1%
800 Compagnie Financiere de Paris...................................... 24,100
-------
POWER/UTILITIES - .5%
632 Compagnie Generale des Eaux........................................ 78,323
-------
</TABLE>
A-63
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
TECHNOLOGY - .4%
1,000 SGS-Thomson Microelectronics N.V.*................................. $ 70,733
-------
Total French Common Stocks......................................... 603,071
-------
GERMANY - 3.3%
CHEMICALS - .7%
900 SGL Carbon AG...................................................... 113,465
-------
COMPUTER SERVICES - .8%
1,000 SAP AG............................................................. 136,145
-------
CONSUMER PRODUCTS - .7%
1,300 Adidas AG.......................................................... 112,360
-------
DRUGS/MEDICAL PRODUCTS - .4%
1,150 Gehe AG............................................................ 73,613
-------
INSURANCE - .7%
160 Koelnische Rueckversicherungs AG................................... 119,574
-------
Total German Common Stocks......................................... 555,157
-------
HONG KONG - 1.4%
BANKING - .6%
180,000 Manhattan Credit Card Co., Ltd. ................................... 91,344
-------
CONSUMER PRODUCTS - .6%
280,000 Yue Yuen Industrial Holdings....................................... 106,794
-------
WHOLESALE - .2%
110,000 China Hong Kong Photo Products Holdings Ltd. ...................... 36,977
-------
Total Hong Kong Common Stocks...................................... 235,115
-------
HUNGARY - 1.0%
CONGLOMERATES - .5%
10,450 Benpres Holdings Corp.*............................................ 84,835
-------
DRUGS/MEDICAL PRODUCTS - .5%
1,550 Gedeon Richter Ltd., GDR........................................... 90,025
-------
Total Hungarian Common Stocks...................................... 174,860
-------
INDONESIA - .1%
WHOLESALE - .1%
15,000 PT Tigaraksa Satria................................................ 20,957
-------
ITALY - 1.6%
CONSUMER PRODUCTS - .8%
6,500 Bulgari S.p.A. .................................................... 131,971
-------
</TABLE>
A-64
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ITALY (CONTINUED)
TELECOMMUNICATIONS - .8%
32,000 Telecom Italia S.p.A. ............................................. $ 62,439
49,000 Telecom Italia Mobile S.p.A.*...................................... 69,931
-------
132,370
-------
Total Italian Common Stocks........................................ 264,341
-------
JAPAN - 9.5%
AUTOMOTIVE - 1.0%
6,000 Calsonic Corp. .................................................... 33,365
3,000 Honda Motor Co., Ltd. ............................................. 85,744
4,000 Murakami Corp. .................................................... 47,319
-------
166,428
-------
BANKING - .9%
600 Aeon Credit Service Co., Ltd. ..................................... 37,302
22,000 Daiwa Bank Ltd. ................................................... 114,930
-------
152,232
-------
BUILDING & CONSTRUCTION - .7%
3,000 Aoki Marine Co., Ltd. ............................................. 14,765
3,000 Maeda Corp. ....................................................... 22,200
1,000 Nichiei Co., Ltd. ................................................. 73,828
-------
110,793
-------
COMPUTER SERVICES - .2%
1,000 Konami Co., Ltd. .................................................. 34,107
-------
CONGLOMERATES - .2%
2,000 Inaba Denkisangyo Co. ............................................. 38,339
-------
CONSUMER PRODUCTS - .9%
7,000 Canon, Inc. ....................................................... 154,736
-------
ELECTRICAL ENGINEERING - .2%
3,100 Kinden Corp. ...................................................... 39,349
-------
ELECTRONICS - 2.5%
700 Kyocera Corp. ADR ................................................. 85,400
8,000 Mitsubishi Electric Corp. ......................................... 47,664
3,000 Omron Corp. ....................................................... 56,472
1,000 Rohm Co. .......................................................... 65,625
4,000 Sodick Co. ........................................................ 33,158
2,000 Sony Corp. ........................................................ 131,077
-------
419,396
-------
INSURANCE - .2%
9,000 Fuji Fire & Marine Insurance....................................... 33,650
-------
</TABLE>
A-65
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
MANUFACTURING - .2%
5,000 Japan Synthetic Rubber............................................. $ 32,812
-------
METALS/MINING - .6%
22,000 Sumitomo Metal Industries.......................................... 54,140
3,000 Toho Titanium*..................................................... 43,520
-------
97,660
-------
MISCELLANEOUS FINANCIAL SERVICES - .6%
2,000 Credit Saison Co., Ltd. ........................................... 44,728
300 Shohkoh Fund....................................................... 65,279
-------
110,007
-------
POWER/UTILITIES - .5%
4,000 Kyushu Electric Power.............................................. 77,714
-------
RETAIL - .4%
9,000 Maruetsu........................................................... 61,471
-------
SECURITY/INVESTIGATION - .2%
4,000 Toyo Tec Co. Ltd. ................................................. 38,339
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
3,000 Mikuni Coca-Cola Bottling.......................................... 38,857
-------
Total Japanese Common Stocks....................................... 1,605,890
-------
LICHTENSTEIN - .2%
BANKING - .2%
65 Liechtenstein Global Trust AG...................................... 33,314
-------
MEXICO - .7%
BUILDING & CONSTRUCTION - .3%
11,000 Corporacion GEO, SA de CV*......................................... 54,217
-------
CONGLOMERATES - .4%
14,000 Alfa S.A. de CV*................................................... 64,647
-------
Total Mexican Common Stocks........................................ 118,864
-------
NETHERLANDS - 1.8%
BUILDING & CONSTRUCTION - .2%
800 Kondor Wessells Groep NV........................................... 32,389
-------
IMPORTING/EXPORTING - .4%
753 Hagemeyer NV....................................................... 60,231
-------
MISCELLANEOUS FINANCIAL SERVICES - .5%
2,478 ING Groep NV....................................................... 89,274
-------
</TABLE>
A-66
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS (CONTINUED)
PRINTING/PUBLISHING - .7%
5,800 Ver Ned Uitgevers.................................................. $ 121,274
-------
Total Netherlands Common Stocks.................................... 303,168
-------
NEW ZEALAND - .4%
FOOD SERVICES - .4%
160,392 AFFCO Holdings Ltd. ............................................... 70,303
-------
NORWAY - .5%
BANKING - .5%
12,700 Fokus Bank AS...................................................... 86,531
-------
SINGAPORE - .6%
PRINTING/PUBLISHING - .6%
5,000 Singapore Press Holdings Ltd. ..................................... 98,621
-------
SOUTH KOREA - .4%
TELECOMMUNICATIONS - .4%
5,150 Korea Mobile Telecom ADR........................................... 66,306
-------
SPAIN - 2.0%
BANKING - .6%
2,400 Corporacion Bancaria de Espana SA.................................. 107,406
-------
ENERGY - .7%
2,900 Repsol SA.......................................................... 111,242
-------
MANUFACTURING - .7%
1,800 Vidrala SA......................................................... 124,506
-------
Total Spanish Common Stocks........................................ 343,154
-------
SWEDEN - 3.4%
BANKING - .5%
2,700 Nordbanken AB*..................................................... 81,753
-------
DRUGS & MEDICAL PRODUCTS - .6%
1,900 ASTRA AB........................................................... 93,887
-------
MACHINERY/ENGINEERING - 1.7%
750 ABB AB............................................................. 84,679
6,500 Atlas Copco AB..................................................... 157,260
3,000 Kalmar Industries AB............................................... 49,927
-------
291,866
-------
PAPER PRODUCTS - .6%
3,750 AssiDoman AB....................................................... 104,474
-------
Total Swedish Common Stocks........................................ 571,980
-------
</TABLE>
A-67
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWITZERLAND - 3.1%
BANKING - .6%
1,050 CS Holding AG...................................................... $ 107,863
-------
BUILDING & CONSTRUCTION - .4%
100 Holderbank Financiere Glaris AG.................................... 71,423
-------
DRUGS & MEDICAL PRODUCTS - 1.7%
120 Ares-Serono Group.................................................. 114,486
150 NOVARTIS AG*....................................................... 171,797
-------
286,283
-------
MANUFACTURING - .4%
25 Sig Schweizerische Industrie - Gesellschaft Holding AG............. 63,317
-------
Total Swiss Common Stocks.......................................... 528,886
-------
THAILAND - .6%
WHOLESALE - .6%
24,000 Siam Makro Public Co., Ltd. ....................................... 105,747
-------
UNITED KINGDOM - 4.9%
AUTOMOTIVE - .6%
26,863 LucasVarity PLC*................................................... 102,399
-------
COMPUTER SERVICES - .4%
26,000 Amstrad PLC........................................................ 65,256
-------
ELECTRONICS - .9%
8,000 Siebe PLC.......................................................... 148,569
-------
MANUFACTURING - .3%
32,000 Bridon PLC......................................................... 55,371
-------
METALS/MINING - .4%
12,000 Antofagasta Holdings PLC........................................... 69,899
-------
MISCELLANEOUS FINANCIAL SERVICES - .8%
18,000 Lloyds TSB Group PLC............................................... 132,757
-------
RETAIL - 1.5%
13,116 Dixon Group PLC.................................................... 122,015
19,515 Safeway, Inc. ..................................................... 135,406
-------
257,421
-------
Total United Kingdom Common Stocks................................. 831,672
-------
UNITED STATES - 37.0%
AEROSPACE/DEFENSE - 6.3%
3,000 Lockheed Martin Corp. ............................................. 274,500
12,500 McDonnell Douglas Corp. ........................................... 800,000
-------
1,074,500
-------
</TABLE>
A-68
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
BANKING - 6.1%
4,000 Citicorp........................................................... $ 412,000
2,300 Wells Fargo & Co. ................................................. 620,425
-------
1,032,425
-------
BUILDING & CONSTRUCTION - .2%
2,000 Newport News Shipbuilding, Inc.*................................... 30,000
-------
CHEMICALS - 5.0%
5,000 du Pont (E.I.) de Nemours & Co. ................................... 471,875
4,000 Hercules, Inc. .................................................... 173,000
5,000 Monsanto Co. ...................................................... 194,375
-------
839,250
-------
CONGLOMERATES - 2.7%
10,000 Tenneco, Inc. ..................................................... 451,250
-------
CONSUMER PRODUCTS - 1.8%
11,000 Mattel, Inc. ...................................................... 305,250
-------
DRUGS & MEDICAL PRODUCTS - 2.0%
8,000 Becton, Dickinson & Co. ........................................... 347,000
-------
ENTERTAINMENT - .2%
2,000 Harrah's Entertainment, Inc.*...................................... 39,750
-------
FOOD SERVICES - 1.6%
6,000 McDonald's Corp. .................................................. 271,500
-------
METALS/MINING - .7%
4,000 Freeport McMoRan Copper & Gold (Class B)........................... 119,500
-------
MISCELLANEOUS FINANCIAL SERVICES - 3.9%
6,000 Federal Home Loan Mortgage Corp. .................................. 660,750
-------
PAPER PRODUCTS - .3%
1,100 Champion International, Inc. ...................................... 47,575
-------
RAILROADS - 1.4%
4,000 Union Pacific Corp. ............................................... 240,500
-------
TECHNOLOGY - 1.4%
1,000 Intel Corp. ....................................................... 130,938
4,000 National Semiconductor Corp.*...................................... 97,500
-------
228,438
-------
TELECOMMUNICATIONS - 2.4%
1,300 Loral Space & Communications*...................................... 23,888
30,000 Tele-Communications, Inc. (Class A)*............................... 391,875
-------
415,763
-------
</TABLE>
A-69
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
TRANSPORTATION - 1.0%
2,000 AMR Corp.*......................................................... $ 176,250
-----------
Total United States Common Stocks.................................. 6,279,701
-----------
Total Common Stocks (cost - $13,393,679)........................... $14,798,840
-----------
Total Investments (cost - $15,167,243)........................ 97.6% $16,561,209
Other Assets in Excess of Other Liabilities................... 2.4 411,279
----- -----------
Total Net Assets.............................................. 100.0% $16,972,488
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-70
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $15,167,243)..................................... $16,561,209
Foreign currencies (cost - $339,499)........................................... 335,801
Receivable from investments sold............................................... 69,056
Receivable from fund shares sold............................................... 43,500
Dividends receivable........................................................... 10,619
Foreign withholding taxes reclaimable.......................................... 3,653
Interest receivable............................................................ 1,412
Other assets................................................................... 483
-----------
Total Assets................................................................. 17,025,733
-----------
LIABILITIES
Due to custodian............................................................... 19,178
Investment advisory fees payable............................................... 7,840
Payable for investments purchased.............................................. 3,696
Foreign withholding taxes payable.............................................. 418
Other payables and accrued expenses............................................ 22,113
-----------
Total Liabilities............................................................ 53,245
-----------
Total Net Assets............................................................. $16,972,488
===========
NET ASSETS
Par value ($.01 per share)..................................................... $ 12,826
Paid-in-capital in excess of par............................................... 15,567,305
Accumulated undistributed net investment income................................ 2,107
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies................................ 1,390,250
-----------
Total Net Assets............................................................. $16,972,488
===========
Fund shares outstanding........................................................ 1,282,602
-----------
Net asset value per share...................................................... $ 13.23
-----------
</TABLE>
See accompanying notes to financial statements.
A-71
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $8,706)....................... $ 126,858
Interest..................................................................... 59,746
----------
Total investment income................................................... 186,604
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)........................................... 71,811
Custodian fees (note 1G)..................................................... 59,592
Auditing, consulting and tax return preparation fees......................... 12,394
Transfer and dividend disbursing agent fees.................................. 9,147
Legal fees................................................................... 2,083
Reports and notices to shareholders.......................................... 1,592
Miscellaneous................................................................ 9,757
----------
Total operating expenses.................................................. 166,376
Less: Investment advisory fees waived (note 2A)........................... (37,689)
Less: Expense offset arrangement (note 1G)................................ (15,447)
----------
Net operating expenses............................................... 113,240
----------
Net investment income................................................ 73,364
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS -- NET
Net realized gain on investments............................................. 85,039
Net realized loss on foreign currency transactions........................... (6,772)
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies................................................................ 1,247,855
----------
Net realized gain (loss) and change in unrealized appreciation
(depreciation) on investments and translation of other assets and
liabilities denominated in foreign currencies............................ 1,326,122
----------
Net increase in net assets resulting from operations........................... $1,399,486
==========
</TABLE>
See accompanying notes to financial statements.
A-72
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 73,364 $ 12,301
Net realized gain on investments............................ 85,039 57,143
Net realized loss on foreign currency transactions.......... (6,772) (2,877)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies............. 1,247,855 142,395
----------- -----------
Net increase in net assets resulting from operations... 1,399,486 208,962
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (60,776) (8,174)
Net realized gains on investments........................... (89,998) (57,143)
----------- -----------
Total dividends and distributions to shareholders...... (150,774) (65,317)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 16,110,547 2,683,554
Reinvestment of dividends and distributions................. 150,774 65,317
Cost of shares redeemed..................................... (3,428,866) (1,195)
----------- -----------
Net increase in net assets from fund share
transactions......................................... 12,832,455 2,747,676
----------- -----------
Total increase in net assets...................... 14,081,167 2,891,321
NET ASSETS
Beginning of period......................................... 2,891,321 0
----------- -----------
End of period (including undistributed net investment income
of $2,107 and 4,127, respectively)........................ $16,972,488 $2,891,321
=========== ===========
SHARES ISSUED AND REDEEMED
Issued...................................................... 1,304,431 243,412
Issued in reinvestment of dividends and distributions....... 11,415 5,636
Redeemed.................................................... (282,190) (102)
----------- -----------
Net increase........................................... 1,033,656 248,946
=========== ===========
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-73
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
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 Trust is comprised of seven portfolios: 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 (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 Trust is an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies and qualified pension and retirement plans. 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. Investment debt securities (other than short-term
obligations) are valued each business day by an independent pricing service
(approved by the Board of Trustees) using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of sixty
days or less are valued at amortized cost or amortized value, which approximates
market value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment 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
A-74
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSLATION (CONTINUED)
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.
(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-capital or tax return of capital.
The following table discloses the cumulative effect of differences
reclassified from accumulated net realized foreign currency loss and accumulated
net realized loss on investments to accumulated undistributed net investment
income:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET ACCUMULATED NET UNDISTRIBUTED
REALIZED FOREIGN REALIZED LOSS NET INVESTMENT
CURRENCY LOSS ON INVESTMENTS INCOME
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
$9,649 $4,959 ($14,608)
</TABLE>
(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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has agreed to waive that portion of the advisory fee necessary
to limit total operating expenses of the Portfolio to 1.25% (net of expense
offsets) of average daily net assets on an annual basis.
A-75
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $41,242, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $4,563.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996 purchases and sales of investment
securities, other than short-term securities, were $15,233,328 and $3,081,962,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $1,780,424, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $386,458 and net unrealized appreciation for Federal income tax purposes is
$1,393,966. Federal income tax cost basis of portfolio securities is $16,561,209
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-76
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 11.61 $ 10.00
----------- ----------
Income from investment operations:
Net investment income.................................. 0.04 0.05
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and translation of
other assets and liabilities denominated in foreign
currencies........................................... 1.70 1.83
----------- ----------
Total from investment operations..................... 1.74 1.88
----------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.05) (0.03)
Distributions to shareholders from net realized capital
gains................................................ (0.07) (0.24)
----------- ----------
Total dividends and distributions to shareholders.... (0.12) (0.27)
----------- ----------
Net asset value, end of period......................... $ 13.23 $ 11.61
=========== ==========
Total return(2)........................................ 15.0% 18.9%
=========== ==========
Net assets, end of period.............................. $16,972,488 $2,891,321
----------- ----------
Ratio of net operating expenses to average net
assets(5)............................................ 1.42%(3,4) 1.25%(6)
----------- ----------
Ratio of net investment income to average net
assets(5)............................................ 0.81%(3) 1.02%(6)
----------- ----------
Portfolio turnover rate................................ 40% 67%
----------- ----------
Average commission rate................................ $ 0.0254 --
----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Average net assets for the year ended December 31, 1996 were $9,072,948.
(4) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(5) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income (loss) to average daily net assets would have been 1.83%
and 0.22%, respectively, for the year ended December 31, 1996, and 3.94.%
and (1.67)%, annualized, respectively, for the period March 1, 1995
(commencement of operations) to December 31, 1995.
(6) Annualized.
A-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC 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 seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year then ended and 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 audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-78
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - .9%
$ 240,000 Federal Home Loan Bank, 5.41%, 7/30/97(cost - $238,954).............. $ 238,954
----------
SHORT-TERM CORPORATE NOTES - 18.5%
AUTOMOTIVE - 3.3%
Ford Motor Credit Co.,
$ 150,000 5.51%, 7/15/97....................................................... $ 149,679
125,000 5.53%, 7/22/97....................................................... 124,597
555,000 5.54%, 7/22/97....................................................... 553,206
----------
827,482
----------
BANKING - 2.9%
745,000 Norwest Financial Inc., 5.53%, 7/14/97............................... 743,512
----------
MACHINERY/ENGINEERING - 3.4%
Deere (John) Capital Corp.,
180,000 5.51%, 7/17/97....................................................... 179,559
685,000 5.53%, 7/28/97....................................................... 682,159
----------
861,718
----------
MISCELLANEOUS FINANCIAL SERVICES - 4.5%
1,150,000 American Express Credit Corp., 5.51%, 7/17/97........................ 1,147,184
----------
TECHNOLOGY - 4.4%
1,100,000 IBM Credit Corp., 5.51%, 7/15/97..................................... 1,097,643
----------
Total Short-Term Corporate Notes (cost - $4,677,539)................. $ 4,677,539
----------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 80.3%
AEROSPACE/DEFENSE - 5.3%
8,000 Lockheed Martin Corp. ............................................... $ 828,500
7,494 McDonnell Douglas Corp. ............................................. 513,339
----------
1,341,839
----------
BANKING - 6.4%
6,556 Citicorp ............................................................ 790,408
3,033 Wells Fargo & Co. ................................................... 817,393
----------
1,607,801
----------
CHEMICALS - 3.3%
4,000 du Pont (E.I.) de Nemours & Co. ..................................... 251,500
7,698 Hercules, Inc. ...................................................... 368,542
4,910 Monsanto Co. ........................................................ 211,437
----------
831,479
----------
CONGLOMERATES - 2.6%
4,312 General Electric Co. ................................................ 281,897
8,500 Tenneco, Inc......................................................... 384,094
----------
665,991
----------
</TABLE>
A-79
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS - 2.0%
3,844 Avon Products, Inc. ................................................. $ 271,242
6,843 Mattel, Inc. ........................................................ 231,807
----------
503,049
----------
DRUGS & MEDICAL PRODUCTS - 2.8%
14,042 Becton, Dickinson & Co. ............................................. 710,876
----------
ELECTRONICS - 3.0%
4,038 Arrow Electronics, Inc.*............................................. 214,519
24,000 EG & G, Inc. ........................................................ 540,000
----------
754,519
----------
ENERGY - 1.1%
697 El Paso Natural Gas Co. ............................................. 38,335
4,996 Triton Energy Ltd.*.................................................. 228,879
----------
267,214
----------
FOOD SERVICES - 2.0%
10,500 McDonald's Corp. .................................................... 507,281
----------
HEALTH & HOSPITALS - 3.2%
27,750 Tenet Healthcare Corp.*.............................................. 820,359
----------
INSURANCE - 23.2%
16,700 ACE Ltd. ............................................................ 1,233,713
7,372 AFLAC, Inc. ......................................................... 348,327
1,262 American International Group, Inc. .................................. 188,511
12,000 Everest Reinsurance Holdings, Inc. .................................. 475,500
24,452 EXEL Ltd. ........................................................... 1,289,843
5,000 General Re Corp. .................................................... 910,000
10,000 Mid Ocean Ltd. ...................................................... 524,375
4,579 Progressive Corp. (Ohio)............................................. 398,373
13,000 RenaissanceRe Holdings Ltd. ......................................... 495,625
----------
5,864,267
----------
LEISURE - 2.3%
14,000 Carnival Corp. ...................................................... 577,500
----------
MACHINERY/ENGINEERING - 3.8%
9,000 Caterpillar, Inc. ................................................... 966,375
----------
MANUFACTURING - 4.1%
6,000 Armstrong World Industries, Inc. .................................... 440,250
17,560 LucasVarity Corp. PLC ADR............................................ 608,015
----------
1,048,265
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.3%
19,912 Countrywide Credit Industries, Inc. ................................. 621,006
20,620 Federal Home Loan Mortgage Corp. .................................... 708,812
----------
1,329,818
----------
</TABLE>
A-80
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PRINTING/PUBLISHING - 1.6%
11,000 Donnelley (R.R.) & Sons Co. ......................................... $ 402,875
----------
RETAIL - 2.2%
11,888 May Department Stores Co. ........................................... 561,708
----------
TELECOMMUNICATIONS - 2.7%
6,000 Sprint Corp. ........................................................ 315,750
25,000 Tele-Communications, Inc. (Class A)*................................. 371,875
----------
687,625
----------
TRANSPORTATION - 3.4%
4,300 AMR Corp.*........................................................... 397,750
16,000 Canadian Pacific Ltd................................................. 455,000
----------
852,750
----------
Total Common Stocks (cost - $14,087,737)............................. $20,301,591
----------
Total Investments (cost - $19,004,230).................... 99.7% $25,218,084
Other Assets in Excess of Liabilities..................... 0.3 74,626
----- -----------
Total Net Assets.......................................... 100.0% $25,292,710
===== ===========
</TABLE>
- - ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-81
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $19,004,230)...................................... $25,218,084
Cash............................................................................ 52,668
Dividends receivable............................................................ 20,848
Receivable from fund shares sold................................................ 14,368
Other assets.................................................................... 1,004
-----------
Total Assets.................................................................. 25,306,972
-----------
LIABILITIES
Investment advisory fee payable................................................. 1,667
Payable for fund shares redeemed................................................ 952
Other payables and accrued expenses............................................. 11,643
-----------
Total Liabilities............................................................. 14,262
-----------
Total Net Assets.............................................................. $25,292,710
===========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)...................................................... $ 7,716
Paid-in-capital in excess of par................................................ 18,627,928
Accumulated undistributed net investment income................................. 139,630
Accumulated undistributed net realized gain on investments...................... 303,582
Net unrealized appreciation on investments...................................... 6,213,854
-----------
Total Net Assets.............................................................. $25,292,710
===========
Fund shares outstanding......................................................... 771,634
-----------
Net asset value per share....................................................... $ 32.78
===========
</TABLE>
See accompanying notes to financial statements.
A-82
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 149,752
Interest....................................................................... 97,795
----------
Total investment income..................................................... 247,547
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 86,822
Custodian fees (note 1G)....................................................... 7,528
Transfer and dividend disbursing agent fees.................................... 4,626
Audit fees..................................................................... 4,165
Trustees' fees and expenses.................................................... 2,203
Reports and notices to shareholders............................................ 1,937
Legal fees..................................................................... 1,091
Miscellaneous.................................................................. 246
----------
Total operating expenses.................................................... 108,618
Less: Expenses offset (note 1G)............................................. (701)
----------
Net operating expenses................................................. 107,917
----------
Net investment income.................................................. 139,630
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 303,581
Net change in unrealized appreciation (depreciation) on investments............ 2,471,711
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 2,775,292
----------
Net increase in net assets resulting from operations............................. $2,914,922
==========
</TABLE>
See accompanying notes to financial statements.
A-83
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 139,630 $ 188,895
Net realized gain on investments........................... 303,581 672,433
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,471,711 2,218,378
----------- ----------
Net increase in net assets resulting from
operations.......................................... 2,914,922 3,079,706
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (188,895) (111,781)
Net realized gains......................................... (672,433) (223,969)
----------- ----------
Total dividends and distributions to shareholders..... (861,328) (335,750)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 3,388,606 9,184,397
Reinvestment of dividends and distributions................ 861,328 335,750
Cost of shares redeemed.................................... (853,816) (1,457,087)
----------- ----------
Net increase in net assets from fund share
transactions........................................ 3,396,118 8,063,060
----------- ----------
Total increase in net assets..................... 5,449,712 10,807,016
NET ASSETS
Beginning of period........................................ 19,842,998 9,035,982
----------- ----------
End of period (including undistributed net investment
income of $139,630 and $188,895, respectively)........... $25,292,710 $19,842,998
=========== ==========
SHARES ISSUED AND REDEEMED
Issued..................................................... 111,055 339,540
Issued in reinvestment of dividends and distributions...... 28,807 13,029
Redeemed................................................... (28,038) (53,448)
----------- ----------
Net increase.......................................... 111,824 299,121
=========== ==========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-84
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC 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 six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio (the "Portfolio"), the Small Cap Portfolio, the Global
Equity Portfolio, the Managed Portfolio, the U.S. Government Income Portfolio
and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities 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 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 income tax treatment; temporary
differences do
A-85
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
not require reclassification. To the extent dividends and/or distributions
exceed current and accumulated earnings and profits for Federal income tax
purposes, they are reported as dividends and/or distributions of paid-in-capital
or tax return of capital.
(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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.00% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $4,820, of which Oppenheimer & Co., Inc., an affiliate
of the Adviser, received $1,518.
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities, were $2,006,683 and $1,828,102,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $6,214,033, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $179 and net unrealized appreciation for Federal income tax purposes is
$6,213,854. Federal income tax cost basis of portfolio securities is $19,004,230
at June 30, 1997.
A-86
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-87
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ----------- ---------- ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 30.07 $ 25.05 $ 18.12 $ 18.57
----------- ----------- ---------- ----------
Income from investment
operations:
Net investment income......... 0.18 0.21 0.31 0.09
Net realized and unrealized
gain (loss) on
investments................. 3.81 5.52 6.71 (0.54)
----------- ----------- ---------- ----------
Total from investment
operations............... 3.99 5.73 7.02 (0.45)
----------- ----------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from
net investment income....... (0.28) (0.24) (0.09) --
Distributions to shareholders
from net realized gains..... (1.00) (0.47) -- --
----------- ----------- ---------- ----------
Total dividends and
distributions to
shareholders............. (1.28) (0.71) (0.09) --
----------- ----------- ---------- ----------
Net asset value, end of
period...................... $ 32.78 $ 30.07 $ 25.05 $ 18.12
=========== =========== ========== ==========
Total return (2).............. 13.7% 23.4% 38.9% (2.4%)
=========== =========== ========== ==========
Net assets, end of period..... $ 25,292,710 $19,842,998 $9,035,982 $4,281,256
----------- ----------- ---------- ----------
Ratio of net operating
expenses to average net
assets (5).................. 1.00%(3,4) 0.93%(6) 0.72%(6) 0.72%(3,6)
----------- ----------- ---------- ----------
Ratio of net investment income
to average net assets....... 1.29%(3,4) 1.29%(6) 1.74%(6) 1.80%(3,6)
----------- ----------- ---------- ----------
Portfolio turnover rate....... 10% 36% 31% 6%
----------- ----------- ---------- ----------
Average commission rate....... $ 0.0566 $ 0.0588 -- --
----------- ----------- ---------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $21,885,297.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the
year ended December 31, 1996, 1.26% and 1.20%, respectively, for the year
ended December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
(7) Unaudited.
A-88
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - 1.1%
$ 675,000 Federal Home Loan Mortgage Corp., 5.40%, 8/7/97 (cost - $671,254).... $ 671,254
-----------
SHORT-TERM CORPORATE NOTES - 14.3%
AUTOMOTIVE - 2.8%
$1,630,000 Ford Motor Credit Co., 5.53%, 7/15/97................................ $ 1,626,495
-----------
INSURANCE - 3.1%
1,840,000 Prudential Funding Corp., 5.54%, 7/31/97............................. 1,831,505
-----------
MACHINERY/ENGINEERING - 2.9%
Deere (John) Capital Corp.,
240,000 5.40%, 7/3/97........................................................ 239,928
1,500,000 5.49%, 7/3/97........................................................ 1,499,542
-----------
1,739,470
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.3%
740,000 Beneficial Corp., 5.50%, 7/16/97..................................... 738,304
-----------
TECHNOLOGY - 4.2%
2,500,000 IBM Credit Corp., 5.51%, 7/15/97..................................... 2,494,643
-----------
Total Short-Term Corporate Notes (cost - $8,430,417)................. $ 8,430,417
-----------
CONVERTIBLE CORPORATE BOND - .1%
REAL ESTATE - .1%
$ 49,995 Security Capital Group, Inc., 12.00%, 6/30/14 (A) (cost - $45,368)... $ 60,161
-----------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 84.7%
ADVERTISING - .2%
18,000 Katz Media Group, Inc.*.............................................. $ 118,125
-----------
AEROSPACE/DEFENSE - 1.2%
28,800 Tracor, Inc.*........................................................ 723,600
-----------
AUTOMOTIVE - 1.9%
20,700 Borg-Warner Automotive, Inc. ........................................ 1,119,094
-----------
BUILDING & CONSTRUCTION - 2.6%
29,200 Chicago Bridge & Iron Co.*........................................... 646,050
17,800 Dal-Tile International, Inc.*........................................ 330,413
42,900 JLG Industries, Inc. ................................................ 584,512
-----------
1,560,975
-----------
CHEMICALS - 4.3%
47,100 McWhorter Technologies, Inc.*........................................ 1,124,513
57,200 Schulman (A.), Inc. ................................................. 1,408,550
-----------
2,533,063
-----------
</TABLE>
A-89
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
COMPUTER SERVICES - 4.1%
22,100 BA Merchants Services, Inc.*......................................... $ 421,281
46,367 BancTec, Inc.*....................................................... 1,202,644
17,500 BDM International, Inc.*............................................. 402,500
25,800 Reynolds & Reynolds Co. ............................................. 406,350
-----------
2,432,775
-----------
DRUGS & MEDICAL PRODUCTS - 4.4%
21,100 Dentsply International, Inc. ........................................ 1,033,900
44,700 SpaceLabs Medical, Inc.*............................................. 1,139,850
23,200 Vital Signs, Inc. ................................................... 407,450
-----------
2,581,200
-----------
ELECTRONICS - 5.8%
30,300 EG & G, Inc. ........................................................ 681,750
54,700 Exar Corp.*.......................................................... 1,176,050
33,620 Oak Industries, Inc.*................................................ 966,575
24,400 Watts Industries, Inc.*.............................................. 585,600
-----------
3,409,975
-----------
ENERGY - 5.5%
35,400 KCS Energy, Inc. .................................................... 721,275
22,100 Nuevo Energy Co.*.................................................... 906,100
45,100 St. Mary Land & Exploration Co. ..................................... 1,584,138
-----------
3,211,513
-----------
HEALTH & HOSPITALS - 3.4%
68,500 Magellan Health Services, Inc*....................................... 2,020,750
-----------
INSURANCE - 12.8%
66,600 Capsure Holdings Corp.*.............................................. 861,637
38,000 Corvel Corp.*........................................................ 1,092,500
22,422 Delphi Financial Group, Inc.*........................................ 863,247
57,000 E.W. Blanch Holdings, Inc. .......................................... 1,521,188
46,500 Gryphon Holdings, Inc. .............................................. 709,125
14,000 Horace Mann Educators Corp. ......................................... 686,000
23,300 RenaissanceRe Holdings Ltd. ......................................... 888,313
26,700 United Wisconsin Services, Inc. ..................................... 899,456
-----------
7,521,466
-----------
MACHINERY/ENGINEERING - 4.8%
28,100 Ametek, Inc. ........................................................ 660,350
29,400 Durco International, Inc. ........................................... 859,950
16,900 Kaydon Corp. ........................................................ 838,663
19,200 United Dominion Industries, Ltd. .................................... 471,600
-----------
2,830,563
-----------
</TABLE>
A-90
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MANUFACTURING - 9.0%
183,900 Baldwin Technology Co. (Class A)*.................................... $ 551,700
53,000 Easco, Inc........................................................... 516,750
18,800 Jostens, Inc......................................................... 502,900
32,700 Keystone International, Inc.......................................... 1,134,281
44,400 Lydall, Inc.*........................................................ 937,950
55,600 Omniquip International, Inc.*........................................ 1,285,750
7,300 Roper Industries, Inc................................................ 378,687
-----------
5,308,018
-----------
MEDIA/BROADCASTING - 1.7%
24,500 American Radio Systems Corp.*........................................ 976,938
-----------
MISCELLANEOUS FINANCIAL SERVICES - 3.6%
32,500 BISYS Group, Inc.*................................................... 1,356,875
17,100 Enhance Financial Services Group, Inc. .............................. 750,262
-----------
2,107,137
-----------
PAPER PRODUCTS - .7%
22,500 Rock-Tenn Co. ....................................................... 395,156
-----------
PRINTING/PUBLISHING - 6.8%
24,900 Bowne & Co., Inc. ................................................... 868,387
15,800 Harland (John. H.) Co. .............................................. 360,437
88,100 Hollinger International, Inc. ....................................... 985,619
82,400 International Imaging Materials, Inc.*............................... 1,339,000
5,700 Merrill Corp......................................................... 207,338
92,500 Nu-Kote Holdings, Inc. (Class A)*.................................... 231,250
-----------
3,992,031
-----------
REAL ESTATE - .1%
66 Security Capital Group, Inc. (A)..................................... 83,073
-----------
RETAIL - .8%
24,400 Ann Taylor Stores Corp.*............................................. 475,800
-----------
TECHNOLOGY - 5.4%
132,000 Auspex Systems, Inc.*................................................ 1,270,500
7,100 Cable Design Technologies*........................................... 209,006
78,800 Wang Laboratories, Inc.*............................................. 1,679,425
-----------
3,158,931
-----------
TELECOMMUNICATIONS - 2.4%
18,300 ACC Corp.*........................................................... 565,013
800 Plantronics, Inc.*................................................... 40,100
22,300 TCA Cable TV, Inc. .................................................. 839,037
-----------
1,444,150
-----------
</TABLE>
A-91
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TEXTILES/APPAREL - 2.2%
20,200 Burlington Industries, Inc.*......................................... $ 242,400
5,000 Guilford Mills, Inc.................................................. 104,062
23,500 Westpoint Stevens, Inc. (Class A)*................................... 919,438
-----------
1,265,900
-----------
TRANSPORTATION - 1.0%
41,350 Interpool, Inc....................................................... 609,913
-----------
Total Common Stocks (cost - $42,626,469)............................. $49,880,146
-----------
Total Investments (cost - $51,773,508)....................... 100.2% $59,041,978
Liabilities in Excess of Other Assets........................ (0.2) (93,309)
----- -----------
Total Net Assets............................................. 100.0% $58,948,669
===== ==========
</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>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST JUNE 30, 1997
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14.......... 9/16/94 $49,995 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock............. 9/16/94 -- 66 949 1,259
</TABLE>
See accompanying notes to financial statements.
A-92
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $51,773,508)...................................... $59,041,978
Cash............................................................................ 7,817
Receivable from investments sold................................................ 390,380
Receivable from fund shares sold................................................ 103,946
Dividends receivable............................................................ 16,266
Interest receivable............................................................. 6,795
Other assets.................................................................... 1,406
-----------
Total Assets.................................................................. 59,568,588
-----------
LIABILITIES
Payable for investments purchased............................................... 589,999
Payable for fund shares redeemed................................................ 6,101
Investment advisory fee payable................................................. 3,808
Other payables and accrued expenses............................................. 20,011
-----------
Total Liabilities............................................................. 619,919
-----------
Total Net Assets.............................................................. $58,948,669
===========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)...................................................... $ 23,833
Paid-in-capital in excess of par................................................ 48,759,952
Accumulated undistributed net investment income................................. 129,800
Accumulated undistributed net realized gain on investments...................... 2,766,614
Net unrealized appreciation on investments...................................... 7,268,470
-----------
Total Net Assets.............................................................. $58,948,669
===========
Fund shares outstanding......................................................... 2,383,326
-----------
Net asset value per share....................................................... $ 24.73
===========
</TABLE>
See accompanying notes to financial statements.
A-93
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................................... $ 189,707
Dividends...................................................................... 153,844
----------
Total investment income..................................................... 343,551
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 172,578
Custodian fees (note 1G)....................................................... 15,699
Trustees' fees and expenses.................................................... 6,549
Transfer and dividend disbursing agent fees.................................... 4,751
Audit fees..................................................................... 4,413
Reports and notices to shareholders............................................ 4,136
Legal fees..................................................................... 1,560
Miscellaneous.................................................................. 4,891
----------
Total operating expenses.................................................... 214,577
Less: Expenses offset (note 1G)............................................. (826)
----------
Net operating expenses................................................. 213,751
----------
Net investment income.................................................. 129,800
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 2,775,415
Net change in unrealized appreciation (depreciation) on investments............ 4,013,251
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 6,788,666
----------
Net increase in net assets resulting from operations............................. $6,918,466
==========
</TABLE>
See accompanying notes to financial statements.
A-94
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 129,800 $ 226,925
Net realized gain on investments........................... 2,775,415 1,679,412
Net change in unrealized appreciation (depreciation) on
investments.............................................. 4,013,251 2,142,715
----------- -----------
Net increase in net assets resulting from
operations.......................................... 6,918,466 4,049,052
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (226,925) (211,870)
Net realized gains......................................... (1,600,322) (544,700)
----------- -----------
Total dividends and distributions to shareholders..... (1,827,247) (756,570)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 20,049,793 17,604,938
Reinvestment of dividends and distributions................ 1,827,247 756,533
Cost of shares redeemed.................................... (2,276,261) (3,401,674)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 19,600,779 14,959,797
----------- -----------
Total increase in net assets..................... 24,691,998 18,252,279
NET ASSETS
Beginning of period........................................ 34,256,671 16,004,392
----------- -----------
End of period (including undistributed net investment
income of $129,800 and $226,925, respectively)........... $58,948,669 $34,256,671
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 885,839 837,586
Issued in reinvestment of dividends and distributions...... 83,857 38,520
Redeemed................................................... (101,620) (164,530)
----------- -----------
Net increase.......................................... 868,076 711,576
=========== ===========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-95
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC 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 six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global
Equity Portfolio, the Managed Portfolio, the U.S. Government Income Portfolio
and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities 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 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
A-96
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reclassified within the capital accounts based on their Federal income tax
treatment; temporary differences do not require reclassification. To the extent
dividends and/or distributions exceed current and accumulated earnings and
profits for Federal income tax purposes, they are reported as dividends and/or
distributions of paid-in-capital or tax return of capital.
(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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.00% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $80,508, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $20,686.
(3) PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities were $35,011,021 and $20,175,495,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $8,547,833, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $1,288,163, and net unrealized appreciation for Federal income tax purposes
is $7,259,670. Federal income tax cost basis of portfolio securities is
$51,782,308 at June 30, 1997.
A-97
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-98
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $ 22.61 $ 19.91 $ 17.38 $ 17.49
----------- ----------- ----------- ----------
Income from investment
operations:
Net investment income........ 0.03 0.14 0.26 0.06
Net realized and unrealized
gain (loss) on
investments................ 3.14 3.45 2.37 (0.17)
----------- ----------- ----------- ----------
Total from investment
operations.............. 3.17 3.59 2.63 (0.11)
----------- ----------- ----------- ----------
Dividends and distributions
to shareholders:
Dividends to shareholders
from net investment
income..................... (0.13) (0.25) (0.05) --
Distributions to shareholders
from net realized gains.... (0.92) (0.64) (0.05) --
----------- ----------- ----------- ----------
Total dividends and
distributions to
shareholders............ (1.05) (0.89) (0.10) --
----------- ----------- ----------- ----------
Net asset value, end of
period..................... $ 24.73 $ 22.61 $ 19.91 $ 17.38
=========== =========== =========== ==========
Total return (2)............. 14.6% 18.7% 15.2% (0.6%)
=========== =========== =========== ==========
Net assets, end of period.... $ 58,948,669 $34,256,671 $16,004,392 $ 9,210,443
----------- ----------- ----------- ----------
Ratio of net operating
expenses to average net
assets (5)................. 0.99%(3,4) 0.93%(6) 0.74%(6) 0.74%(3,6)
----------- ----------- ----------- ----------
Ratio of net investment
income to average net
assets..................... 0.60%(3,4) 1.03%(6) 1.75%(6) 1.22%(3,6)
----------- ----------- ----------- ----------
Portfolio turnover rate...... 54% 50% 69% 32%
----------- ----------- ----------- ----------
Average commission rate...... $ 0.0544 $ 0.0493 -- --
----------- ----------- ----------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $43,502,064.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been, 1.01% and 0.92%, respectively, for the
year ended December 31, 1996, 0.99% and 1.50%, respectively, for the year
ended December 31, 1995 and 1.64% and 0.32%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
(7) Unaudited.
A-99
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 1.4%
Federal Home Loan Bank,
$ 525,000 5.36%, 7/1/97....................................................... $ 525,000
1,245,000 5.40%, 7/24/97...................................................... 1,240,705
2,190,000 5.40%, 8/7/97....................................................... 2,177,845
------------
Total U.S. Government Agency Notes (cost - $3,943,550).............. $ 3,943,550
------------
SHORT-TERM CORPORATE NOTES - 22.8%
AUTOMOTIVE - 1.8%
Ford Motor Credit Co.,
$4,445,000 5.53%, 7/31/97...................................................... $ 4,424,516
590,000 5.54%, 7/31/97...................................................... 587,276
------------
5,011,792
------------
BANKING - 4.3%
12,295,000 Norwest Financial Inc., 5.53%, 7/14/97.............................. 12,270,447
------------
CONGLOMERATES - 4.0%
11,400,000 General Electric Capital Corp., 5.54%, 7/31/97...................... 11,347,370
------------
MACHINERY/ENGINEERING - 2.9%
Deere (John) Capital Corp.,
4,830,000 5.45%, 7/3/97....................................................... 4,828,538
2,010,000 5.49%, 7/3/97....................................................... 2,009,387
1,390,000 5.53%, 7/28/97...................................................... 1,384,235
------------
8,222,160
------------
MISCELLANEOUS FINANCIAL SERVICES - 8.9%
10,000,000 American Express Credit Corp., 5.54%, 7/29/97....................... 9,956,911
5,380,000 Household Finance Corp., 5.50%, 7/14/97............................. 5,369,315
9,940,000 Merrill Lynch & Co., Inc., 5.55%, 7/21/97........................... 9,909,352
------------
25,235,578
------------
TECHNOLOGY - .9%
IBM Credit Corp.,
675,000 5.50%, 7/15/97...................................................... 673,556
1,810,000 5.51%, 7/15/97...................................................... 1,806,122
------------
2,479,678
------------
Total Short-Term Corporate Notes (cost - $64,567,025)............... $ 64,567,025
------------
U.S. TREASURY NOTES AND BONDS - .6%
$ 700,000 6.25%, 8/15/23...................................................... $ 648,046
630,000 7.875%, 4/15/98..................................................... 640,237
297,500 7.875%, 8/15/01..................................................... 313,538
------------
Total U.S. Treasury Notes and Bonds (cost - $1,512,217)............. $ 1,601,821
------------
</TABLE>
A-100
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ------------
<C> <S> <C>
CONVERTIBLE CORPORATE BOND - .2%
REAL ESTATE - .2%
$ 614,371 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $557,508)................................................... $ 739,294
------------
SHARES
- - ----------
CONVERTIBLE PREFERRED STOCK - .0%
RETAIL - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............ $ 39,029
------------
COMMON STOCKS - 78.2%
AEROSPACE/DEFENSE - 6.8%
60,000 Lockheed Martin Corp. .............................................. $ 6,213,750
190,000 McDonnell Douglas Corp. ............................................ 13,015,000
------------
19,228,750
------------
BANKING - 11.8%
90,000 BankBoston Corp. ................................................... 6,485,625
97,000 Citicorp ........................................................... 11,694,562
10,400 First Empire State Corp. ........................................... 3,504,800
44,000 Wells Fargo & Co. .................................................. 11,858,000
------------
33,542,987
------------
CHEMICALS - 7.6%
210,000 du Pont (E.I.) de Nemours & Co. .................................... 13,203,750
100,000 Hercules, Inc. ..................................................... 4,787,500
80,000 Monsanto Co. ....................................................... 3,445,000
------------
21,436,250
------------
COMPUTER SERVICES - 1.0%
50,000 Computer Associates International Inc. ............................. 2,784,375
------------
CONGLOMERATES - 3.2%
200,000 Tenneco, Inc........................................................ 9,037,500
------------
CONSUMER PRODUCTS - 3.9%
325,200 Mattel, Inc. ....................................................... 11,016,150
------------
DRUGS & MEDICAL PRODUCTS - 2.3%
130,000 Becton, Dickinson & Co.............................................. 6,581,250
------------
ENERGY - 1.3%
70,000 Triton Energy Ltd.*................................................. 3,206,875
20,000 Union Pacific Resources Group, Inc.................................. 497,500
------------
3,704,375
------------
FOOD SERVICES - 3.6%
210,000 McDonald's Corp..................................................... 10,145,625
------------
</TABLE>
A-101
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE - 5.0%
74,700 ACE Ltd............................................................. $ 5,518,462
138,600 EXEL Ltd............................................................ 7,311,150
15,400 Transamerica Corp................................................... 1,440,863
------------
14,270,475
------------
MACHINERY/ENGINEERING - 4.2%
110,000... Caterpillar, Inc.................................................... 11,811,250
------------
METALS & MINING - 2.0%
182,300 Freeport McMoRan Copper & Gold (Class B)............................ 5,674,088
------------
MISCELLANEOUS FINANCIAL SERVICES - 10.1%
70,000 American Express Co. ............................................... 5,215,000
130,000 Countrywide Credit Industries, Inc. ................................ 4,054,375
355,000 Federal Home Loan Mortgage Corp. ................................... 12,203,125
160,600 Federal National Mortgage Assoc. ................................... 7,006,175
------------
28,478,675
------------
PAPER PRODUCTS - 2.9%
150,000 Champion International Corp. ....................................... 8,287,500
------------
PRINTING/PUBLISHING - .3%
25,000 Donnelley (R.R.) & Sons Co. ........................................ 915,625
------------
RAILROADS - 2.1%
85,000 Union Pacific Corp. ................................................ 5,992,500
------------
REAL ESTATE - .4%
811 Security Capital Group, Inc. (A).................................... 1,020,796
------------
TECHNOLOGY - 5.0%
38,900 Intel Corp. ........................................................ 5,516,506
206,400 National Semiconductor Corp.*....................................... 6,321,000
48,000 Unitrode Corp.*..................................................... 2,418,000
------------
14,255,506
------------
TELECOMMUNICATIONS - 4.2%
800,000 Tele-Communications, Inc. (Class A)*................................ 11,900,000
------------
</TABLE>
A-102
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
WASTE DISPOSAL - .5%
47,818 Waste Management Inc. .............................................. $ 1,536,153
------------
Total Common Stocks (cost - $157,878,096)........................... $221,619,830
------------
Total Investments (cost - $228,560,923)................ 103.2% $292,510,549
Liabilities in Excess of Other Assets.................. (3.2) (9,104,888)
----- ------------
Total Net Assets....................................... 100.0% $283,405,661
===== ============
</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>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST JUNE 30, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14..... 9/16/94 $614,371 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock........ 9/16/94 -- 811 949 1,259
</TABLE>
See accompanying notes to financial statements.
A-103
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $228,560,923).................................... $292,510,549
Cash........................................................................... 20,234
Receivable from fund shares sold............................................... 154,952
Interest receivable............................................................ 119,182
Dividends receivable........................................................... 101,991
Other assets................................................................... 4,301
------------
Total Assets................................................................. 292,911,209
------------
LIABILITIES
Payable for investments purchased.............................................. 9,303,187
Payable for fund shares redeemed............................................... 136,128
Investment advisory fee payable................................................ 18,581
Other payables and accrued expenses............................................ 47,652
------------
Total Liabilities............................................................ 9,505,548
------------
Total Net Assets............................................................. $283,405,661
============
COMPOSITION OF NET ASSETS
Par value ($.01 per share)..................................................... $ 71,753
Paid-in-capital in excess of par............................................... 213,136,971
Accumulated undistributed net investment income................................ 1,561,847
Accumulated undistributed net realized gain on investments..................... 4,685,464
Net unrealized appreciation on investments..................................... 63,949,626
------------
Total Net Assets............................................................. $283,405,661
============
Fund shares outstanding........................................................ 7,175,255
------------
Net asset value per share...................................................... $ 39.50
============
</TABLE>
See accompanying notes to financial statements.
A-104
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 1,298,226
Interest...................................................................... 1,254,905
-----------
Total investment income.................................................... 2,553,131
-----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................ 888,578
Reports and notices to shareholders........................................... 20,179
Custodian fees (note 1G)...................................................... 20,146
Trustees' fees and expenses................................................... 12,767
Audit fees.................................................................... 8,889
Transfer and dividend disbursing agent fees................................... 5,782
Legal fees.................................................................... 4,699
Miscellaneous................................................................. 30,941
-----------
Total operating expenses................................................... 991,981
Less: Expenses offset (note 1G)............................................ (698)
-----------
Net operating expenses................................................ 991,283
-----------
Net investment income................................................. 1,561,848
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments.............................................. 4,685,469
Net change in unrealized appreciation (depreciation) on investments........... 24,338,046
-----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments............................................................... 29,023,515
-----------
Net increase in net assets resulting from operations............................ $30,585,363
===========
</TABLE>
See accompanying notes to financial statements.
A-105
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 1,561,848 $ 2,161,819
Net realized gain on investments............................ 4,685,469 6,639,637
Net change in unrealized appreciation (depreciation) on
investments............................................... 24,338,046 18,285,659
------------ ------------
Net increase in net assets resulting from operations... 30,585,363 27,087,115
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (2,161,819) (1,378,070)
Net realized gains.......................................... (6,639,642) (878,874)
------------ ------------
Total dividends and distributions to shareholders...... (8,801,461) (2,256,944)
------------ ------------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 82,323,735 79,297,599
Reinvestment of dividends and distributions................. 8,801,461 2,256,944
Cost of shares redeemed..................................... (10,231,531) (24,844,767)
------------ ------------
Net increase in net assets from fund share
transactions......................................... 80,893,665 56,709,776
------------ ------------
Total increase in net assets...................... 102,677,567 81,539,947
NET ASSETS
Beginning of period......................................... 180,728,094 99,188,147
------------ ------------
End of period (including undistributed net investment income
of $1,561,847 and $2,161,818, respectively)............... $283,405,661 $ 180,728,094
============ ============
SHARES ISSUED AND REDEEMED
Issued...................................................... 2,214,230 2,403,077
Issued in reinvestment of dividends and distributions....... 243,943 73,016
Redeemed.................................................... (274,288) (775,472)
------------ ------------
Net increase........................................... 2,183,885 1,700,621
============ ============
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-106
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC 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 six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio (the "Portfolio"), the U.S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities 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 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
A-107
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reclassified within the capital accounts based on their Federal income tax
treatment; temporary differences do not require reclassification. To the extent
dividends and/or distributions exceed current and accumulated earnings and
profits for Federal income tax purposes, they are reported as dividends and/or
distributions of paid-in-capital or tax return of capital.
(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 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) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.00% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $64,187, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $24,908.
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities, were $51,856,834 and $13,672,297,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $64,137,022, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $187,396 and net unrealized appreciation for Federal income tax purposes is
$63,949,626. Federal income tax cost basis of portfolio securities is
$228,560,923 at June 30, 1997.
A-108
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-109
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $ 36.21 $ 30.14 $ 20.83 $ 21.80
------------ ------------ ----------- -----------
Income from investment
operations:
Net investment income........ 0.18 0.43 0.42 0.14
Net realized and unrealized
gain (loss) on
investments................ 4.73 6.31 9.02 (1.11)
------------ ------------ ----------- -----------
Total from investment
operations.............. 4.91 6.74 9.44 (0.97)
------------ ------------ ----------- -----------
Dividends and distributions
to shareholders:
Dividends to shareholders
from net investment
income..................... (0.40) (0.41) (0.13) --
Distributions to shareholders
from net realized gains.... (1.22) (0.26) -- --
------------ ------------ ----------- -----------
Total dividends and
distributions to
shareholders............ (1.62) (0.67) (0.13) --
------------ ------------ ----------- -----------
Net asset value, end of
period..................... $ 39.50 $ 36.21 $ 30.14 $ 20.83
============ ============ =========== ===========
Total return (2)............. 14.0% 22.8% 45.6% (4.4%)
============ ============ =========== ===========
Net assets, end of period.... $283,405,661 $180,728,094 $ 99,188,147 $54,943,371
------------ ------------ ----------- -----------
Ratio of net operating
expenses to average net
assets (5)................. 0.89%(3,4) 0.84%(6) 0.66%(6) 0.66%(3,6)
------------ ------------ ----------- -----------
Ratio of net investment
income to average net
assets..................... 1.41%(3,4) 1.66%(6) 1.85%(6) 2.34%(3,6)
------------ ------------ ----------- -----------
Portfolio turnover rate...... 7% 27% 22% 8%
------------ ------------ ----------- -----------
Average commission rate...... $ 0.0574 $ 0.0592 -- --
------------ ------------ ----------- -----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $223,985,374.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees. If
such waivers had not been in effect, the ratios of net operating expenses to
average net assets and the ratios of net investment income to average net
assets would have been, 0.85% and 1.65%, respectively, for the year ended
December 31, 1996, 0.74% and 1.77%, respectively, for the year ended
December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31, 1994.
(7) Unaudited.
A-110
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - --------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 19.8%
$ 80,000 Federal Farm Credit Bank, 5.18%, 10/17/97.......................... $ 78,757
960,000 Federal Home Loan Bank, 6.00%, 7/1/97.............................. 960,000
----------
Total U.S. Government Agency Notes (amortized cost - $1,038,757)... $1,038,757
----------
SHORT-TERM CORPORATE NOTES - 80.5%
AUTOMOTIVE - 9.1%
$ 150,000 American Honda Finance Corp., 5.58%, 7/24/97....................... $ 149,465
170,000 Ford Motor Credit Co., 5.58%, 9/8/97............................... 168,182
160,000 General Motors Acceptance Corp., 5.56%, 8/25/97.................... 158,641
----------
476,288
----------
BANKING - 8.6%
100,000 Morgan (J.P.) & Co., Inc., 5.50%, 7/23/97.......................... 99,664
150,000 Svenska Handelsbanken Inc., 5.60%, 7/1/97.......................... 150,000
200,000 UBS Finance Delaware, Inc., 5.52%, 7/14/97......................... 199,601
----------
449,265
----------
BROKERAGE - 5.6%
150,000 Goldman Sachs Group, L.P., 5.62%, 9/2/97........................... 148,525
150,000 Morgan Stanley Group, Inc., 5.56%, 8/11/97......................... 149,050
----------
297,575
----------
CONGLOMERATES - 6.8%
190,000 General Electric Capital Corp., 5.56%, 10/27/97.................... 186,537
175,000 Mitsubishi International, 5.60%, 7/28/97........................... 174,265
----------
360,802
----------
ENTERTAINMENT - 3.8%
200,000 Walt Disney Co., 5.48%, 7/7/97..................................... 199,817
----------
INSURANCE - 5.8%
120,000 Aetna Services Inc., 5.62% 7/7/97.................................. 119,888
185,000 Prudential Funding Corp., 5.53%, 7/16/97........................... 184,574
----------
304,462
----------
MACHINERY/ENGINEERING - 5.6%
140,000 Deere (John) Capital Corp., 5.54%, 9/15/97......................... 138,363
160,000 Pitney Bowes Credit Corp., 5.65%, 10/1/97.......................... 157,690
----------
296,053
----------
</TABLE>
A-111
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - --------- ----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 11.4%
$ 160,000 American Express Credit Corp., 5.56%, 7/7/97....................... $ 159,852
160,000 Associates Corp. N.A., 5.55%, 8/11/97.............................. 158,988
110,000 Beneficial Corp., 5.31%, 7/14/97................................... 109,789
170,000 Household Finance Corp., 5.52%, 7/18/97............................ 169,557
----------
598,186
----------
SOVEREIGN - 3.4%
180,000 Eksportfinans A/S, 5.60%, 8/29/97.................................. 178,348
----------
TECHNOLOGY - 6.5%
185,000 IBM Credit Corp., 5.54%, 8/18/97................................... 183,633
160,000 Motorola Credit Corp., 5.50%, 7/24/97.............................. 159,438
----------
343,071
----------
TELECOMMUNICATIONS - 8.2%
110,000 American Telephone & Telegraph Co., 5.52%, 7/28/97................. 109,544
120,000 Ameritech Corp., 5.50%, 7/14/97.................................... 119,762
200,000 BellSouth Telecommunications Inc., 5.47%, 7/2/97................... 199,970
----------
429,276
----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - 5.7%
120,000 Coca Cola Co., 5.40%, 7/29/97...................................... 119,491
180,000 PepsiCo Inc., 5.47%, 7/2/97........................................ 179,973
----------
299,464
----------
Total Short-Term Corporate Notes (amortized cost - $4,232,607)..... $4,232,607
----------
Total Investments (amortized cost - $5,271,364)............ 100.3% $5,271,364
Liabilities in Excess of Other Assets...................... (0.3) (17,639)
----- ----------
Total Net Assets........................................... 100.0% $5,253,725
===== =========
</TABLE>
See accompanying notes to financial statements.
A-112
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost - $5,271,364).............................. $5,271,364
Cash............................................................................. 5,443
Other assets..................................................................... 585
----------
Total Assets................................................................... 5,277,392
----------
LIABILITIES
Dividends payable................................................................ 7,460
Payable for fund shares redeemed................................................. 2,614
Investment advisory fee payable.................................................. 173
Other payables and accrued expenses.............................................. 13,420
----------
Total Liabilities.............................................................. 23,667
----------
Total Net Assets............................................................... $5,253,725
==========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)....................................................... $ 52,537
Paid-in-capital in excess of par................................................. 5,201,207
Accumulated net realized loss on investments..................................... (19)
----------
Total Net Assets............................................................... $5,253,725
==========
Fund shares outstanding.......................................................... 5,253,743
----------
Net asset value per share........................................................ $ 1.00
==========
</TABLE>
See accompanying notes to financial statements.
A-113
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $129,999
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 9,477
Custodian fees (note 1G)........................................................ 4,686
Transfer and dividend disbursing agent fees..................................... 4,527
Audit fees...................................................................... 3,873
Legal fees...................................................................... 955
Reports and notices to shareholders............................................. 612
Miscellaneous................................................................... 2,820
--------
Total operating expenses..................................................... 26,950
Less: Investment advisory fees waived (note 2)............................... (3,439)
Less: Expenses offset (note 1G).............................................. (208)
--------
Net operating expenses.................................................. 23,303
--------
Net investment income................................................... 106,696
--------
REALIZED LOSS ON INVESTMENTS - NET
Net realized loss on investments................................................ (6)
--------
Net increase in net assets resulting from operations.............................. $106,690
========
</TABLE>
See accompanying notes to financial statements.
A-114
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 106,696 $ 181,416
Net realized loss on investments........................... (6) (14)
----------- -----------
Net increase in net assets resulting from
operations.......................................... 106,690 181,402
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (106,696) (181,416)
Net realized gains......................................... -- (46)
----------- -----------
Total dividends and distributions to shareholders..... (106,696) (181,462)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 2,103,920 6,146,104
Reinvestment of dividends and distributions................ 99,926 182,704
Cost of shares redeemed.................................... (2,229,157) (5,405,790)
----------- -----------
Net increase (decrease) in net assets from fund share
transactions........................................ (25,311) 923,018
----------- -----------
Total increase (decrease) in net assets.......... (25,317) 922,958
NET ASSETS
Beginning of period........................................ 5,279,042 4,356,084
----------- -----------
End of period (including undistributed net investment
income of $0 and $0, respectively)....................... $ 5,253,725 $ 5,279,042
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 2,103,920 6,146,104
Issued in reinvestment of dividends and distributions...... 99,926 182,704
Redeemed................................................... (2,229,157) (5,405,790)
----------- -----------
Net increase (decrease)............................... (25,311) 923,018
=========== ===========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-115
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC 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 six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the U.S. Government Income Portfolio and the Money Market
Portfolio ("the Portfolio"). OpCap Advisors (the "Adviser"), a majority-owned (
99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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. The amortized cost method involves valuing a security at cost on
the date of purchase and thereafter assuming a constant dollar amortization to
maturity of the difference between the principal amount due at maturity and the
initial cost of the security.
(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. Federal income tax cost basis of
portfolio securities is the same as for financial reporting purposes.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. 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.
(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 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.
A-116
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
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 necessary to limit total operating expenses of
the Portfolio to 1.00% (net of expenses offset) of average net assets on an
annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales/maturities of
investment securities, were $24,904,984 and $25,044,398, respectively.
(4) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-117
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income.......... 0.02 0.04 0.05 0.01
Net realized gain (loss) on
investments.................. (0.00) (0.00) 0.00 --
---------- ---------- ---------- ----------
Total from investment
operations................ 0.02 0.04 0.05 0.01
---------- ---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from
net investment income........ (0.02) (0.04) (0.05) (0.01)
Distributions to shareholders
from net realized gains...... -- (0.00) -- --
---------- ---------- ---------- ----------
Total dividends and
distributions to
shareholders.............. (0.02) (0.04) (0.05) (0.01)
---------- ---------- ---------- ----------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total return (2)............... 2.3% 4.5% 5.1% 1.2%
========== ========== ========== ==========
Net assets, end of period...... $5,253,725 $5,279,042 $4,356,084 $ 3,519,526
---------- ---------- ---------- ----------
Ratio of net operating expenses
to average net assets
(5,6)........................ 0.99%(3,4) 1.01% 1.00% 1.00%(3)
---------- ---------- ---------- ----------
Ratio of net investment income
to average net assets (6).... 4.50%(3,4) 4.43% 4.94% 4.13%(3)
---------- ---------- ---------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $4,777,776.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.14% and 4.36%, annualized,
respectively, for the six months ended June 30, 1997, 1.30% and 4.13%,
respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
(7) Unaudited.
A-118
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ----------
<C> <S> <C> <C>
U.S. TREASURY NOTES - 49.1%
$ 300,000 5.75%, 8/15/03..................................................... $ 289,686
480,000 5.875%, 1/31/99.................................................... 479,025
1,100,000 6.00%, 9/30/98..................................................... 1,101,199
650,000 6.25%, 4/30/01..................................................... 648,173
620,000 6.50%, 10/15/06.................................................... 617,384
125,000 7.25%, 5/15/04..................................................... 130,293
----------
Total U.S. Treasury Notes (cost - $3,250,869)...................... $3,265,760
----------
U.S. GOVERNMENT AGENCY NOTES - 28.8%
Federal Farm Credit Bank,
$ 25,000 5.41%, 7/2/97...................................................... $ 24,996
75,000 8.65%, 10/1/99..................................................... 78,633
Federal Home Loan Bank,
100,000 8.09%, 12/28/04.................................................... 107,937
155,000 8.60%, 8/25/99..................................................... 162,265
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03..................................................... 171,747
300,000 7.71%, 6/21/04..................................................... 303,984
125,000 7.75%, 11/7/01..................................................... 130,546
150,000 8.115%, 1/31/05.................................................... 161,788
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98.................................................... 59,672
150,000 9.20%, 9/11/00..................................................... 162,070
150,000 Private Export Funding Corp., 9.10%, 10/30/98........................ 155,601
Student Loan Marketing Assoc.,
75,000 7.00%, 3/3/98...................................................... 75,563
100,000 7.20%, 11/9/00..................................................... 102,328
Tennessee Valley Authority,
150,000 6.00%, 11/1/00..................................................... 147,962
65,000 8.375%, 10/1/99.................................................... 67,783
----------
Total U.S. Government Agency Notes (cost - $1,906,262)............. $1,912,875
----------
</TABLE>
A-119
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ----------
<C> <S> <C> <C>
MORTGAGE-RELATED SECURITIES - 13.6%
Federal National Mortgage Assoc.,
$ 173,804 6.50%, 5/1/26...................................................... $ 166,363
182,890 7.00%, 1/1/10...................................................... 183,403
146,602 8.00%, 8/1/24...................................................... 150,175
115,003 8.00%, 12/1/24..................................................... 118,056
7,502 9.00%, 8/1/02...................................................... 7,778
17,538 9.50%, 12/1/06..................................................... 18,307
40,110 9.50%, 3/1/19...................................................... 43,180
72,407 9.50%, 12/1/19..................................................... 77,814
133,808 Government National Mortgage Assoc., 8.50%, 3/15/25.................. 139,117
----------
Total Mortgage-Related Securities (cost - $889,581)................ $ 904,193
----------
CORPORATE NOTES - 6.9%
CONGLOMERATES - 1.6%
$ 100,000 General Electric Capital Corp., 8.375%, 3/1/01....................... $ 105,481
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.3%
125,000 Associates Corp., N.A., 5.25%, 3/30/00............................... 120,928
125,000 International Lease Finance Corp., 6.125%, 11/1/99................... 124,060
100,000 Lehman Brothers Holdings, Inc., 8.50%, 5/1/07........................ 107,652
----------
352,640
----------
Total Corporate Notes (cost - $451,722)............................ $ 458,121
----------
Total Investments (cost - $6,498,434)....................... 98.4% $6,540,949
Other Assets in Excess of Liabilities....................... 1.6 106,978
----- ----------
Total Net Assets............................................ 100.0% $6,647,927
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-120
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $6,498,434)........................................ $6,540,949
Cash............................................................................. 27,445
Interest receivable.............................................................. 96,672
Receivable from fund shares sold................................................. 14,884
Other assets..................................................................... 1,000
----------
Total Assets................................................................... 6,680,950
----------
LIABILITIES
Dividends payable................................................................ 11,258
Payable for fund shares redeemed................................................. 2,573
Investment advisory fee payable.................................................. 275
Other payables and accrued expenses.............................................. 18,917
----------
Total Liabilities.............................................................. 33,023
----------
Total Net Assets............................................................... $6,647,927
==========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)....................................................... $ 6,436
Paid-in-capital in excess of par................................................. 6,622,946
Accumulated net realized loss on investments..................................... (23,970)
Net unrealized appreciation on investments....................................... 42,515
----------
Total Net Assets............................................................... $6,647,927
==========
Fund shares outstanding.......................................................... 643,563
----------
Net asset value per share........................................................ $ 10.33
==========
</TABLE>
See accompanying notes to financial statements.
A-121
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $161,985
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 14,993
Custodian fees (note 1G)........................................................ 10,174
Transfer and dividend disbursing agent fees..................................... 6,033
Audit fees...................................................................... 3,838
Reports and notices to shareholders............................................. 1,136
Legal fees...................................................................... 900
Miscellaneous................................................................... 1,238
--------
Total operating expenses..................................................... 38,312
Less: Investment advisory fees waived (note 2)............................... (13,132)
Less: Expenses offset (note 1G).............................................. (196)
--------
Net operating expenses.................................................. 24,984
--------
Net investment income................................................... 137,001
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized loss on investments................................................ (16,079)
Net change in unrealized appreciation (depreciation) on investments............. 26,949
--------
Net realized loss and change in unrealized appreciation (depreciation) on
investments................................................................. 10,870
--------
Net increase in net assets resulting from operations.............................. $147,871
========
</TABLE>
See accompanying notes to financial statements.
A-122
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income........................................ $ 137,001 $ 130,053
Net realized loss on investments............................. (16,079) (7,891)
Net change in unrealized appreciation (depreciation) on
investments................................................ 26,949 (26,424)
---------- ----------
Net increase in net assets resulting from operations.... 147,871 95,738
---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................................ (137,001) (130,053)
Net realized gains........................................... -- --
---------- ----------
Total dividends and distributions to shareholders....... (137,001) (130,053)
---------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales...................................... 3,495,129 2,180,216
Reinvestment of dividends and distributions.................. 125,744 130,663
Cost of shares redeemed...................................... (405,814) (297,024)
---------- ----------
Net increase in net assets from fund share
transactions.......................................... 3,215,059 2,013,855
---------- ----------
Total increase in net assets....................... 3,225,929 1,979,540
NET ASSETS
Beginning of period.......................................... 3,421,998 1,442,458
---------- ----------
End of period (including undistributed net investment income
of $0 and $0, respectively)................................ $6,647,927 $ 3,421,998
========== ==========
SHARES ISSUED AND REDEEMED
Issued....................................................... 341,129 209,939
Issued in reinvestment of dividends and distributions........ 12,193 12,589
Redeemed..................................................... (39,494) (28,592)
---------- ----------
Net increase............................................ 313,828 193,936
========== ==========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-123
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC 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 six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the U.S. Government Income Portfolio (the "Portfolio") and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. 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 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 income tax treatment; temporary
differences do not require reclassification. To the extent dividends and/or
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as dividends and/or distributions of
paid-in-capital or tax return of capital.
A-124
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 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.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
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 assume any necessary expenses to
limit total operating expenses of the Portfolio to 1.00% (net of expenses
offset) of average net assets on an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1997 purchases and sales of investment
securities, other than short-term securities, were $6,237,713 and $3,017,417,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $69,498, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $28,671 and net unrealized appreciation for Federal income tax purposes is
$40,827. Federal income tax cost basis of portfolio securities is $6,500,122 at
June 30, 1997.
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG") signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-125
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
JANUARY 3, 1995(1)
SIX MONTHS ENDED YEAR ENDED TO
JUNE 30, 1997(7) DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 10.38 $ 10.62 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment income................... 0.28 0.55 0.60
Net realized and unrealized gain (loss)
on investments........................ (0.05) (0.24) 0.68
---------- ---------- ----------
Total from investment operations...... 0.23 0.31 1.28
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.28) (0.55) (0.60)
Distributions to shareholders from net
realized gains........................ -- -- (0.06)
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.28) (0.55) (0.66)
---------- ---------- ----------
Net asset value, end of period.......... $ 10.33 $ 10.38 $ 10.62
========== ========== ==========
Total return (2)........................ 2.2% 3.0% 13.1%
========== ========== ==========
Net assets, end of period............... $ 6,647,927 $ 3,421,998 $1,442,458
---------- ---------- ----------
Ratio of net operating expenses to
average net assets (5,6).............. 1.01%(3,4) 0.96% 0.75%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets (6)................ 5.48%(3,4) 5.27% 5.75%(3)
---------- ---------- ----------
Portfolio turnover rate................. 60% 31% 65%
---------- ---------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $5,038,930.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.53% and 4.96%, annualized,
respectively, for the six months ended June 30, 1997, and 2.34% and 3.87%,
respectively, for the year ended December 31, 1996 and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
(7) Unaudited.
A-126
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 7.6%
Federal Home Loan Bank,
$ 265,000 5.40%, 7/24/97..................................................... $ 264,086
1,580,000 5.41%, 8/14/97..................................................... 1,569,553
-----------
Total U.S. Government Agency Notes (cost - $1,833,639)............. $ 1,833,639
-----------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 91.4%
AUSTRALIA - 1.0%
ENERGY - .5%
37,328 Novus Petroleum Ltd. .............................................. $ 128,358
-----------
PAPER PRODUCTS - .5%
17,137 WMC Ltd. .......................................................... 108,143
-----------
Total Australian Common Stocks..................................... 236,501
-----------
BERMUDA - 4.1%
INSURANCE - 4.1%
12,800 ACE Ltd. .......................................................... 945,600
800 EXEL Ltd. ......................................................... 42,200
-----------
Total Bermuda Common Stocks........................................ 987,800
-----------
BRAZIL - 1.9%
BANKING - .5%
5,000 Bompreco Supermecados Norde* GDR................................... 121,500
-----------
PAPER PRODUCTS - .3%
3,100 Aracruz Celulose SA ADR............................................ 63,163
-----------
TELECOMMUNICATIONS - .8%
3,200 Ericsson Telecomunicacoes SA....................................... 190,237
-----------
TEXTILES/APPAREL - .3%
210 Compahnia de Tecidos Norte de Minas-Conteminas..................... 81,928
-----------
Total Brazilian Common Stocks...................................... 456,828
-----------
CANADA - 2.8%
ELECTRONICS - .4%
11,940 CAE, Inc. ......................................................... 94,676
-----------
ENERGY - 1.4%
3,000 PanCanadian Petroleum Ltd. ........................................ 63,000
3,750 Precision Drilling Corp.*.......................................... 181,125
3,600 Suncor, Inc. ...................................................... 95,413
-----------
339,538
-----------
</TABLE>
A-127
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
PRINTING/PUBLISHING - .3%
3,250 Thomson Corp. ..................................................... $ 75,664
-----------
SECURITY/INVESTIGATION - .4%
4,500 Unican Security Systems Ltd. ...................................... 90,590
-----------
TRANSPORTATION - .3%
2,875 Canadian Pacific Ltd. ............................................. 81,298
-----------
Total Canadian Common Stocks....................................... 681,766
-----------
CHILE - .3%
CONGLOMERATES - .3%
3,300 Quinenco SA* ADR................................................... 61,050
-----------
CZECHOSLOVAKIA - .4%
TELECOMMUNICATIONS - .2%
550 SPT Telekom AS*.................................................... 57,679
-----------
MISCELLANEOUS FINANCIAL SERVICES - .2%
2,000 CKD Praha Holding AS*.............................................. 54,409
-----------
Total Czechoslovakian Common Stocks................................ 112,088
-----------
FINLAND - 1.6%
DRUGS & MEDICAL PRODUCTS - .2%
8,200 Oy Tamro AB........................................................ 56,848
-----------
TELECOMMUNICATIONS - 1.4%
4,500 Oy Nokia AB........................................................ 335,372
-----------
Total Finnish Common Stocks........................................ 392,220
-----------
FRANCE - 4.3%
ELECTRONICS - .9%
500 Le Carbone Lorraine................................................ 121,667
1,559 Schneider SA....................................................... 82,981
-----------
204,648
-----------
ENERGY - .9%
2,116 Total SA........................................................... 213,879
-----------
INSURANCE - .7%
2,800 AXA*............................................................... 174,145
-----------
MANUFACTURING - .4%
1,556 Michelin (CGDE).................................................... 93,439
-----------
POWER/UTILITIES - .6%
2,264 Compagnie Generale des Eaux........................................ 145,725
-----------
</TABLE>
A-128
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
TECHNOLOGY - .8%
2,400 SGS-Thomson Microelectronics N.V.*................................. $ 189,494
-----------
Total French Common Stocks......................................... 1,021,330
-----------
GERMANY - 4.6%
CHEMICALS - .8%
1,300 SGL Carbon AG...................................................... 177,994
-----------
COMPUTER SERVICES - 1.4%
1,650 SAP AG............................................................. 331,116
-----------
CONSUMER PRODUCTS - .6%
1,300 Adidas AG.......................................................... 143,856
-----------
DRUGS & MEDICAL PRODUCTS - .3%
1,150 Gehe AG............................................................ 78,465
-----------
INSURANCE - .6%
175 Koelnische Rueckversicherungs AG................................... 149,504
-----------
RETAIL - .9%
2,000 Metro AG........................................................... 219,139
-----------
Total German Common Stocks......................................... 1,100,074
-----------
HONG KONG - .6%
BANKING - .4%
216,000 Manhattan Credit Card Co., Ltd. ................................... 98,279
-----------
MISCELLANEOUS FINANCIAL SERVICES - .2%
70,000 Noble Group Ltd.*.................................................. 54,600
-----------
Total Hong Kong Common Stocks...................................... 152,879
-----------
HUNGARY - 1.1%
CONGLOMERATES - .3%
6,650 Benpres Holdings Corp.* GDR........................................ 49,044
3,800 Benpres Holdings Corp.* GDR Reg. S................................. 26,600
-----------
75,644
-----------
DRUGS & MEDICAL PRODUCTS - .8%
500 Gedeon Richter Ltd., GDR........................................... 45,750
500 Gedeon Richter Ltd., GDR Reg. S.................................... 45,688
1,050 Gedeon Richter Ltd., GDS........................................... 96,600
-----------
188,038
-----------
Total Hungarian Common Stocks...................................... 263,682
-----------
INDONESIA - .2%
WHOLESALE - .2%
34,000 PT Tigaraksa Satria................................................ 41,591
-----------
</TABLE>
A-129
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ITALY - .6%
TELECOMMUNICATIONS - .6%
32,000 Telecom Italia S.p.A. ............................................. $ 63,357
49,000 Telecom Italia Mobile S.p.A.*...................................... 87,646
-----------
151,003
-----------
JAPAN - 14.3%
AUTOMOTIVE - 1.3%
15,000 Calsonic Corp. .................................................... 95,271
5,000 Honda Motor Co., Ltd. ............................................. 150,497
5,000 Murakami Corp. .................................................... 54,528
-----------
300,296
-----------
BANKING - 1.2%
20 Aeon Credit Service Co., Ltd. ..................................... 1,300
22,000 Daiwa Bank Ltd. ................................................... 104,223
48,000 Yasuda Trust & Banking............................................. 183,423
-----------
288,946
-----------
BUILDING & CONSTRUCTION - .3%
3,000 Sho-Bond Corp. .................................................... 78,259
-----------
CHEMICALS - 2.1%
25,000 Dainippon Ink & Chemicals, Inc. ................................... 107,747
9,000 Sekisui Chemical Co. .............................................. 91,084
6,000 Shin-Etsu Chemical Co. ............................................ 159,135
53,000 Showa Denko K.K. .................................................. 138,719
-----------
496,685
-----------
COMPUTER SERVICES - .6%
4,000 Konami Co., Ltd. .................................................. 149,363
-----------
CONGLOMERATES - .3%
4,000 Inaba Denkisangyo Co. ............................................. 71,541
-----------
CONSUMER PRODUCTS - 1.0%
7,000 Canon, Inc. ....................................................... 190,543
10,000 Minolta Co. Ltd. .................................................. 62,642
-----------
253,185
-----------
DRUGS & MEDICAL PRODUCTS - .8%
7,000 Takeda Chemical Industries......................................... 196,650
-----------
ELECTRICAL ENGINEERING - .0%
100 Kinden Corp. ...................................................... 1,413
-----------
</TABLE>
A-130
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
ELECTRONICS - 3.1%
10,000 Fujitsu Ltd. ...................................................... $ 138,719
1,000 Kyocera Corp.*..................................................... 79,393
8,000 Mitsubishi Electric Corp. ......................................... 44,739
3,000 Omron Corp. ....................................................... 63,602
1,000 Rohm Co. .......................................................... 102,949
8,000 Sodick Co. ........................................................ 64,980
3,000 Sony Corp. ........................................................ 261,473
-----------
755,855
-----------
INSURANCE - .2%
9,000 Fuji Fire & Marine Insurance....................................... 39,182
-----------
METALS & MINING - .3%
5,000 Toho Titanium*..................................................... 76,339
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.4%
50 Credit Saison Co., Ltd. ........................................... 1,221
2,000 Orix Corp. ........................................................ 148,142
600 Shohkoh Fund....................................................... 181,644
-----------
331,007
-----------
POWER/UTILITIES - .3%
5,000 Kyushu Electric Power.............................................. 85,936
-----------
RETAIL - 1.0%
1,200 Circle K Co. Ltd. ................................................. 68,889
6,000 Mycal Corp. ....................................................... 86,372
1,000 Ryohin Keikaku Co. Ltd. ........................................... 78,869
-----------
234,130
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .4%
6,000 Mikuni Coca-Cola Bottling.......................................... 88,990
-----------
Total Japanese Common Stocks....................................... 3,447,777
-----------
LICHTENSTEIN - .3%
BANKING - .3%
130 Liechtenstein Global Trust AG...................................... 79,692
-----------
MEXICO - 1.2%
BUILDING/CONSTRUCTION - .6%
26,000 Corporacion GEO, S.A. de CV*....................................... 149,833
-----------
CONGLOMERATES - .6%
20,000 Alfa S.A. de CV*................................................... 136,395
-----------
Total Mexican Common Stocks........................................ 286,228
-----------
</TABLE>
A-131
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS - 1.6%
IMPORTING/EXPORTING - .3%
1,516 Hagemeyer NV....................................................... $ 78,314
-----------
MISCELLANEOUS FINANCIAL SERVICES - .8%
3,886 ING Groep NV....................................................... 179,165
-----------
PRINTING/PUBLISHING - .5%
5,800 Ver Ned Uitgevers.................................................. 128,239
-----------
Total Netherlands Common Stocks.................................... 385,718
-----------
NEW ZEALAND - .6%
BUILDING & CONSTRUCTION - .4%
28,344 Fletcher Challenge Ltd. ........................................... 84,132
-----------
FOOD SERVICES - .2%
160,392 AFFCO Holdings Ltd. ............................................... 55,563
-----------
Total New Zealand Common Stocks.................................... 139,695
-----------
NORWAY - .7%
ENERGY - .7%
8,400 Saga Petroleum ASA................................................. 159,308
-----------
POLAND - .1%
BANKING - .1%
2,500 Bank Handlowy W. Warszawie*........................................ 28,830
-----------
SINGAPORE - .4%
PRINTING/PUBLISHING - .4%
5,000 Singapore Press Holdings Ltd. ..................................... 100,720
-----------
SOUTH KOREA - .8%
ENERGY - .2%
1,060 Seoul City Gas Co. Ltd. ........................................... 48,225
-----------
TELECOMMUNICATIONS - .3%
6,000 SK Telecom Co. Ltd.* ADR........................................... 60,375
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
490 Lotte Confectionery Co. ........................................... 76,149
-----------
Total South Korean Common Stocks................................... 184,749
-----------
SPAIN - 1.0%
ENERGY - .5%
2,900 Repsol SA.......................................................... 122,613
-----------
MANUFACTURING - .5%
2,600 Vidrala SA......................................................... 113,281
-----------
Total Spanish Common Stocks........................................ 235,894
-----------
</TABLE>
A-132
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWEDEN - 3.9%
BANKING - .4%
2,700 Nordbanken AB*..................................................... $ 91,099
-----------
DRUGS & MEDICAL PRODUCTS - .6%
8,000 ASTRA AB........................................................... 148,924
-----------
ELECTRONICS - .5%
1,600 Electrolux AB...................................................... 115,416
-----------
MACHINERY/ENGINEERING - 1.8%
13,300 ABB AB............................................................. 186,549
6,900 Atlas Copco AB..................................................... 180,182
4,500 Kalmar Industries AB............................................... 77,080
-----------
443,811
-----------
PAPER PRODUCTS - .6%
5,100 AssiDoman AB....................................................... 145,046
-----------
Total Swedish Common Stocks........................................ 944,296
-----------
SWITZERLAND - 3.7%
BANKING - .7%
1,350 CS Holding AG...................................................... 173,373
-----------
BUILDING & CONSTRUCTION - .7%
170 Holderbank Financiere Glaris AG.................................... 160,568
-----------
DRUGS & MEDICAL PRODUCTS - 2.0%
145 Ares-Serono Group.................................................. 210,051
170 Novartis AG*....................................................... 271,767
-----------
481,818
-----------
MANUFACTURING - .3%
25 Sig Schweizerische Industrie - Gesellschaft Holding AG............. 75,771
-----------
Total Swiss Common Stocks.......................................... 891,530
-----------
THAILAND - .3%
WHOLESALE - .3%
27,000 Siam Makro Public Co., Ltd. ....................................... 74,001
-----------
UNITED KINGDOM - 5.6%
COMPUTER SERVICES - .5%
26,000 Amstrad PLC........................................................ 122,966
-----------
DRUGS & MEDICAL PRODUCTS - 1.0%
12,450 SmithKline Beecham PLC............................................. 229,203
-----------
ELECTRONICS - .6%
8,900 Siebe PLC.......................................................... 150,880
-----------
</TABLE>
A-133
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
MANUFACTURING - 1.1%
48,000 Bridon PLC......................................................... $ 107,112
40,263 LucasVarity PLC*................................................... 139,464
-----------
245,576
-----------
METALS & MINING - .6%
20,000 Antofagasta Holdings PLC........................................... 153,208
-----------
MISCELLANEOUS FINANCIAL SERVICES - .8%
18,317 Lloyds TSB Group PLC............................................... 188,210
-----------
RETAIL - 1.0%
13,116 Dixon Group PLC.................................................... 103,313
24,600 Safeway, Inc. ..................................................... 142,358
-----------
245,671
-----------
Total United Kingdom Common Stocks................................. 1,336,714
-----------
UNITED STATES - 33.4%
AEROSPACE/DEFENSE - 4.4%
3,000 Lockheed Martin Corp. ............................................. 310,687
11,000 McDonnell Douglas Corp. ........................................... 753,500
-----------
1,064,187
-----------
BANKING - 5.7%
4,000 Citicorp........................................................... 482,250
3,300 Wells Fargo & Co. ................................................. 889,350
-----------
1,371,600
-----------
CHEMICALS - 4.6%
11,000 du Pont (E.I.) de Nemours & Co. ................................... 691,625
4,000 Hercules, Inc. .................................................... 191,500
5,000 Monsanto Co. ...................................................... 215,313
-----------
1,098,438
-----------
CONGLOMERATES - 1.9%
10,000 Tenneco, Inc. ..................................................... 451,875
-----------
CONSUMER PRODUCTS - 1.8%
13,000 Mattel, Inc. ...................................................... 440,375
-----------
DRUGS & MEDICAL PRODUCTS - 1.7%
8,000 Becton, Dickinson & Co. ........................................... 405,000
-----------
FOOD SERVICES - 2.8%
14,000 McDonald's Corp. .................................................. 676,375
-----------
MACHINERY/ENGINEERING - 1.3%
3,000 Caterpillar, Inc. ................................................. 322,125
-----------
</TABLE>
A-134
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 3.3%
23,000 Federal Home Loan Mortgage Corp. .................................. $ 790,625
-----------
PAPER PRODUCTS - .7%
3,000 Champion International, Inc. ...................................... 165,750
-----------
RAILROADS - 1.2%
4,000 Union Pacific Corp. ............................................... 282,000
-----------
TECHNOLOGY - 1.1%
1,000 Intel Corp. ....................................................... 141,812
4,000 National Semiconductor Corp.*...................................... 122,500
-----------
264,312
-----------
TELECOMMUNICATIONS - 2.9%
1,300 Loral Space & Communications Ltd.*................................. 19,500
45,000 Tele-Communications, Inc. (Class A)*............................... 669,375
-----------
688,875
-----------
Total United States Common Stocks.................................. 8,021,537
-----------
Total Common Stocks (cost - $17,962,852)........................... $21,975,501
-----------
Total Investments (cost - $19,796,491)............................. 99.0%
$23,809,140
Other Assets in Excess of Liabilities....................... 1.0 239,169
------ ----------
Total Net Assets............................................ 100.0% $24,048,309
====== ===========
</TABLE>
- - ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-135
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $19,796,491)..................................... $23,809,140
Cash........................................................................... 141,921
Foreign currencies (cost - $53,177)............................................ 52,033
Receivable from fund shares sold............................................... 42,582
Dividends receivable........................................................... 17,395
Foreign withholding taxes reclaimable.......................................... 9,131
Other assets................................................................... 889
-----------
Total Assets................................................................. 24,073,091
-----------
LIABILITIES
Payable for fund shares redeemed............................................... 3,151
Investment advisory fees payable............................................... 1,584
Foreign withholding taxes payable.............................................. 1,229
Other payables and accrued expenses............................................ 18,818
-----------
Total Liabilities............................................................ 24,782
-----------
Total Net Assets............................................................. $24,048,309
===========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)..................................................... $ 15,943
Paid-in-capital in excess of par............................................... 19,851,655
Accumulated undistributed net investment income................................ 100,186
Accumulated undistributed net realized gain on investments..................... 88,939
Accumulated net realized loss on foreign currency transactions................. (19,919)
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies................................ 4,011,505
-----------
Total Net Assets............................................................. $24,048,309
===========
Fund shares outstanding........................................................ 1,594,305
-----------
Net asset value per share...................................................... $ 15.08
-----------
</TABLE>
See accompanying notes to financial statements.
A-136
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $14,770)...................... $ 161,489
Interest..................................................................... 63,629
----------
Total investment income................................................... 225,118
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)........................................... 79,334
Custodian fees (note 1H)..................................................... 29,897
Audit fees................................................................... 5,150
Transfer and dividend disbursing agent fees.................................. 4,614
Reports and notices to shareholders.......................................... 1,737
Legal fees................................................................... 1,080
Miscellaneous................................................................ 1,383
----------
Total operating expenses.................................................. 123,195
Less: Investment advisory fees waived (note 2A)........................... (2,537)
Less: Expenses offset (note 1H)........................................... (685)
----------
Net operating expenses............................................... 119,973
----------
Net investment income................................................ 105,145
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS - NET
Net realized gain on investments............................................. 92,782
Net realized loss on foreign currency transactions........................... (19,919)
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies................................................................ 2,621,255
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments and translation of other assets and liabilities denominated
in foreign currencies.................................................... 2,694,118
----------
Net increase in net assets resulting from operations........................... $2,799,263
==========
</TABLE>
See accompanying notes to financial statements.
A-137
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
---------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 105,145 $ 73,364
Net realized gain on investments............................ 92,782 145,915
Net realized loss on foreign currency transactions.......... (19,919) (67,648)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies............. 2,621,255 1,247,855
----------- -----------
Net increase in net assets resulting from operations... 2,799,263 1,399,486
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (7,066) (60,776)
Net realized gains on investments........................... (3,843) (89,998)
----------- -----------
Total dividends and distributions to shareholders...... (10,909) (150,774)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 4,606,509 16,110,547
Reinvestment of dividends and distributions................. 10,909 150,774
Cost of shares redeemed..................................... (329,951) (3,428,866)
----------- -----------
Net increase in net assets from fund share
transactions......................................... 4,287,467 12,832,455
----------- -----------
Total increase in net assets...................... 7,075,821 14,081,167
NET ASSETS
Beginning of period......................................... 16,972,488 2,891,321
----------- -----------
End of period (including undistributed net investment income
of $100,186 and $2,107, respectively)..................... $ 24,048,309 $ 16,972,488
=========== ===========
SHARES ISSUED AND REDEEMED
Issued...................................................... 334,220 1,304,431
Issued in reinvestment of dividends and distributions....... 804 11,415
Redeemed.................................................... (23,321) (282,190)
----------- -----------
Net increase........................................... 311,703 1,033,656
=========== ===========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-138
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC 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 six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio (the
"Portfolio"), the Managed Portfolio, the U.S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. 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) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at 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) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(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
A-139
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(D) FOREIGN CURRENCY TRANSLATION (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(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 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 income tax treatment; temporary
differences do not require reclassification. To the extent dividends and/or
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as dividends and/or distributions of
paid-in-capital or tax return of capital.
(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 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.
(H) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(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 .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.25% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $21,497, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $880.
A-140
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities, were $6,796,997 and $2,508,482,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $4,307,655, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $295,006 and net unrealized appreciation for Federal income tax purposes is
$4,012,649. Federal income tax cost basis of portfolio securities is $19,796,491
at June 30, 1997.
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-141
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 1, 1995(1) TO
JUNE 30, 1997(7) DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of
period............................. $ 13.23 $ 11.61 $ 10.00
----------- ----------- ----------
Income from investment operations:
Net investment income................ 0.07 0.04 0.05
Net realized and unrealized gain on
investments........................ 1.79 1.70 1.83
----------- ----------- ----------
Total from investment operations... 1.86 1.74 1.88
----------- ----------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income.................. (0.01) (0.05) (0.03)
Distributions to shareholders from
net realized gains................. (0.00) (0.07) (0.24)
----------- ----------- ----------
Total dividends and distributions
to shareholders................. (0.01) (0.12) (0.27)
----------- ----------- ----------
Net asset value, end of period....... $ 15.08 $ 13.23 $ 11.61
=========== =========== ==========
Total return (2)..................... 14.1% 15.0% 18.9%
=========== =========== ==========
Net assets, end of period............ $ 24,048,309 $16,972,488 $2,891,321
----------- ----------- ----------
Ratio of net operating expenses to
average net assets (5,6)........... 1.22%(3,4) 1.42% 1.25%(3)
----------- ----------- ----------
Ratio of net investment income to
average net assets (6)............. 1.06%(3,4) 0.81% 1.02%(3)
----------- ----------- ----------
Portfolio turnover rate.............. 14% 40% 67%
----------- ----------- ----------
Average commission rate.............. $ 0.0228 $ 0.0254 --
----------- ----------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $19,997,903.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.24% and 1.03%, annualized,
respectively, for the six months ended June 30, 1997, 1.83% and 0.22%,
respectively, for the year ended December 31, 1996 and 3.94% and (1.67%),
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
(7) Unaudited.
A-142
<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,
Financial Highlights, Notes to Financial Statements and Report of
Independent Accountants for the fiscal year ended December 31,
1996. Schedule of Investments, Statement of Assets and
Liabilities, Statement of Operations, Statement of Changes in Net
Assets, Financial Highlights and Notes to Financial Statements
for the six months ended June 30, 1997.
Included in Part C:
None
C - 1
<PAGE>
EXHIBITS:
(1) (a) Declaration of Trust - Previously filed with Post-Effective
Amendment No. 3.
(b) Amendment to Declaration of Trust dated September 1, 1994 -
Previously filed with Post Effective Amendment No. 3.
(c) Amendment to Declaration of Trust dated September
16, 1994 - Previously filed with Post-Effective Amendment No. 3..
(d) Amendment to Declaration of Trust dated April 22,
1996 - Previously filed with Post-Effective Amendment No. 2.
(2) By-Laws of Registrant - Previously filed with
Post-Effective Amendment No. 3..
(3) Not Applicable.
(4) Not Applicable.
(5) Investment Advisory Agreement
(6) Distribution Agreement
(7) Not Applicable.
(8) Custody Agreement - Previously filed with Post-Effective
Amendment No. 3.
(9) (a) Transfer Agency and Service Agreement - Previously
filed with Post-Effective Amendment No. 3.
(b) Participation AGreement for American Enterprise Life
Insurance Company - Previously filed with Post-Effective
Amendment No. 3.
(c) Amendment No. 1 to Participation Agreement for
American Enterprise Life Insurance Company.
(d) Participation Agreement for Connecticut General Life
Insurance Company and amendment dated August 30, 1996 -
Previously filed with Post-Effective Amendment No. 3.
(e) Participation Agreement for IL Annuity and Insurance
Company- Previously filed with Post-Effective Amendment
No. 2.
C-2
<PAGE>
(f) Participation Agreement for Connecticut General Life
Insurance Company (Separate Account T3)-Previously filed
with Post-Effective Amendment No. 2.
(g) Fund Participation Agreement for CIGNA Life
Insurance Company dated September 5, 1996 - Previously
filed with Post-Effective Amendment No. 3.
(h) Amendment to Fund Participation Agreement for
Connecticut General Life Insurance Company dated 4/23/97
- Previously filed with Post-Effective Amendment No. 5.
(i) Participation Agreement for Providentmutual Life
dated 9/16/94 - Previously file with Post-Effective
Amendment No. 5.
(j) Participation Agreement for PRUCO Life Insurance
Company of Arizona dated 7/1/96 - Previously filed with
Post-Effective Amendment No. 5.
(k) Participation Agreement for PRUCO Life Insurance
Company of New Jersey dated 1/1/97 - Previously filed
with Post-Effective Amendment No. 5.
(l) Participation Agreement for Prudential Insurance of
America - Previously filed with Post-Effective Amendment
No. 5.
(m) Participation Agreement for MONY Life Insurance
Company of America and The Mutual Life Insurance Company
of New York dated as of September 16, 1994.
(n) Participation Agreement for ReliaStar Life Insurance
Company dated August 8, 1997.
(o) Participation Agreement for ReliaStar Bankers
Security Life Insurance Company dated August 8, 1997
(p) Participation Agreement for Northern Life Insurance
Company dated August 8, 1997.
(q) Participation Agreement for American Centurion Life
Insurance Assurance Company.
(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 Post-Effective
Amendment No. 3.
(11) Consent of Independent Accountants.
(12) Not Applicable.
C-3
<PAGE>
(13) Agreement relating to initial capital - Previously filed
with Post-Effective Amendment No. 3.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule showing computation of performance quotations
provided in response to Item 22 - Previously filed with
Post-Effective Amendment No. 3.
(17) Financial Data Schedules - Previously filed with
Post-Effective Amendment No. 3.
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 October 31, 1997
--------------
SHARES OF BENEFICIAL INTEREST
Equity Portfolio. . . . . . . . . . . . . . . . 11
Managed Portfolio . . . . . . . . . . . . . . . 23
Money Market Portfolio. . . . . . . . . . . . . 22
Small Cap Portfolio . . . . . . . . . . . . . . .3
Global Equity Portfolio . . . . . . . . . . . . 10
U.S. Government Income Portfolio. . . . . . . . .5
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.
C-4
<PAGE>
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.
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. Set forth
below is information as to the business, profession, vocation
or employment of a substantial nature of each of the officers
and directors of the investment adviser.
<TABLE>
<CAPTION>
<S> <C>
Name & Current Position with OpCap Advisors Other Business and Connections During the Past
------------------------------------------- Two Years
Thomas E. Duggan, General Counsel & Secretary Managing Director and General Counsel of
Oppenheimer Capital; General Counsel and Secretary
of Oppenheimer Capital Limited and OCC
Distributors.
Bernard H. Garil, President Director of Oppenheimer Capital Trust Company.
Joseph M. La Motta, Chairman Chairman Emeritus of Oppenheimer Capital; General
C - 5
<PAGE>
Partner of Oppenheimer & Co., L.P.; Director of
Oppenheimer Capital Trust Company; Director and
President of Oppenheimer Capital Limited; Chairman of
OCC Distributors.
Sheldon M. Siegel, Treasurer and Chief Managing Director/Treasurer/Chief Financial Officer
Financial Officer of Oppenheimer Capital; Director of Oppenheimer
Capital Trust Company; Treasurer and Chief
Financial Officer of Oppenheimer Capital Limited
and OCC Distributors
</TABLE>
The address of OpCap Advisors is 200 Liberty Street, New York, New York
10281.
ITEM 29. PRINCIPAL UNDERWRITER
(a) OCC Distributors acts as principal underwriter for the
Registrant and, OCC Cash Reserves, Inc.
(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
EACH IS ONE WORLD FINANCIAL CENTER, NEW YORK, NEW YORK,
10281 EXCEPT FOR THOMSON ADVISORY GROUP, INC. WHOSE
PRINCIPAL BUSINESS ADDRESS IS METRO CENTER, ONE STATION
PLACE, STAMFORD, CT 06902:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------- ---------------
<S> <C> <C>
Oppenheimer Capital General Partner None
Thomson Advisory Group General Partner None
Inc.
Peter Muratore President None
Sheldon Siegel Treasurer Treasurer
Thomas E. Duggan Secretary None
</TABLE>
(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
C-6
<PAGE>
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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant 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 14th day of November, 1997.
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 November 14, 1997
- -----------------------------------------
Joseph M. La Motta, President, Trustee
s/Paul Y. Clinton November 14, 1997
- -----------------------------------------
Paul Y. Clinton, Trustee
s/Thomas W. Courtney November 14, 1997
- -----------------------------------------
Thomas W. Courtney, Trustee
s/Lacy B. Herrmann November 14, 1997
- -----------------------------------------
Lacy B. Herrmann, Trustee
s/George Loft November 14, 1997
- -----------------------------------------
George Loft, Trustee
s/Deborah Kaback November 14, 1997
- -----------------------------------------
Deborah Kaback, Secretary
s/Sheldon Siegel November 14, 1997
- -----------------------------------------
Sheldon Siegel, Treasurer
C-8
<PAGE>
OCC ACCUMULATION TRUST
INDEX TO EXHIBITS
Exhibit No.
- -----------
(5) Investment Advisory Agreement
(6) Distribution Agreement
9 (c) Amendment No. 1 to Participation Agreement for American
Enterprise Life Insurance Company.
9 (m) Participation Agreement for MONY Life Insurance Company and
The Mutual Life Insurance Company of New York dated as of
September 16, 1994.
9 (n) Participation Agreement for ReliaStar Life Insurance Company
dated August 8. 1997.
9 (o) Participation Agreement for ReliaStar Bankers Security Life
Insurance Company dated August 8, 1997.
9 (p) Participation Agreement for Northern Life Insurance Company
dated August 8, 1997
9 (q) Participation Agreement for American Centurion Life Assurance
Company.
(11) Consent of independent accountants
C-9
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 5th day of May, 1997, 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 (net of any
expense offsets), 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 CIBC
Oppenheimer Corp. ("CIBC Oppenheimer") ("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
4
<PAGE>
obtainable of the Fund's 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 affiliated broker-dealers) 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, although it will, to the best of its ability, endeavor to be
aware of the current level of the
5
<PAGE>
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, CIBC Oppenheimer will act as its regular
broker so long as it is lawful for it so to act and that CIBC
Oppenheimer may be a major recipient of brokerage commissions paid by
the Fund. CIBC Oppenheimer 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) to the extent required, 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 any affiliated broker/dealer 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/ Howard Smith
- -------------------
By: s/ Deborah Kaback
----------------------------
Title:
OPCAP ADVISORS
Attest:
s/ Howard Smith
- ----------------------
By: s/ Bernard H. Garil
----------------------------
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%
9
<PAGE>
GENERAL DISTRIBUTOR'S AGREEMENT
BETWEEN
OCC ACCUMULATION TRUST
AND
OCC DISTRIBUTORS
November 5, 1997
OCC Distributors
c/o Oppenheimer Capital
Oppenheimer Tower, 37th Floor
World Financial Center
New York, New York 10281
Dear Sirs:
OCC ACCUMULATION TRUST, a Massachusetts business trust (the "Fund"), is
registered as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and an indefinite number of shares of its capital
stock (hereinafter referred to as "shares") is registered under the Securities
Act of 1933, as amended (the "1933 Act") to be offered for sale to the public in
a continuous public offering in accordance with the terms and conditions set
forth in the Prospectus included in the Fund's Registration Statement as it may
be amended from time to time.
In this connection, the Fund desires that your firm act as General
Distributor and as Agent of the Fund for the sale and distribution of shares
which have been registered as described above and of any additional shares which
may become registered during the term of this Agreement. You have advised the
Fund that you are willing to act as such General Distributor and Agent, and it
is accordingly agreed between us as follows:
1. The Fund hereby appoints you as General Distributor as exclusive Agent
for sale of its shares, pursuant to the aforesaid continuous public offering of
its shares, and the Fund further agrees from and after the date of this
Agreement, that it will not, without your consent, sell or agree to sell any
shares otherwise than through you except the Fund may issue shares in connection
with a merger, consolidation or acquisition of assets on such basis as may be
authorized or permitted under the 1940 Act.
2. You hereby accept such appointment and agree to use your best efforts
to sell such shares, provided, however, that when requested by the Fund at any
time because of market or other economic considerations or abnormal
circumstances of any kind, you will suspend such efforts. The Fund may also
withdraw the offering of the shares at any time when required by the provisions
of any statute,
<PAGE>
order, rule or regulation of any governmental body having jurisdiction. It is
understood that you do not undertake to sell all or any specific portion of the
shares of the Fund.
3. The shares shall be sold by you at net asset value.
4. As General Distributor, you shall have the right to accept or reject
orders for the purchase of shares of the Fund. Any consideration which you may
receive in connection with a rejected purchase order will be returned promptly.
You agree promptly to issue confirmations of all accepted purchase orders and to
transmit a copy of such confirmations to the Fund, or if so directed, to any
duly appointed transfer or shareholder servicing agent of the Fund. The net
asset value of all shares which are the subject of such confirmations, computed
in accordance with the applicable rules under the 1940 Act, shall be a liability
of your company to the Fund to be paid promptly after receipt of payment from
the originating dealer and not later than eleven business days after such
confirmation even if you have not actually received payment from the originating
dealer. If the originating dealer shall fail to make timely settlement of its
purchase order in accordance with the rules of the National Association of
Securities Dealers,Inc., you shall have the right to cancel such purchase order
and, at your account and risk, to hold responsible the originating dealer. You
agree promptly to reimburse the Fund for any amount by which the Fund's losses
attributable to any such cancellation or to errors on your part in relation to
the effective date of accepted purchase orders, exceed contemporaneous gains
realized by the Fund for either of such reasons in respect to other purchase
orders. The Fund shall register or cause to be registered all shares sold by
you pursuant to the provisions hereof in such name or names and amounts as you
may request from time to time and the Fund shall issue or cause to be issued
certificates evidencing such shares for delivery to you or pursuant to your
direction if and to the extent that the shareholder account in question
contemplates the issuance of such share certificates. All shares of the Fund,
when so issued and paid for, shall be fully paid and non-assessable.
5. The Fund has delivered to you a copy of its current prospectus. The
Fund agrees that it will use its best efforts to continue the effectiveness of
the Fund's Registration Statement under the 1933 Act. The Fund further agrees
to prepare and file any amendments to its Registration Statement as may be
necessary and any supplemental data in order to comply with the 1933 Act. The
Fund will furnish you at your expense with a reasonable number of copies of the
Prospectus and any amended Prospectus for use in connection with the sale of
shares.
6. The Fund is registered under the 1940 Act as an investment company, and
it will use its best efforts to maintain such registration and to comply with
the requirements of the 1940 Act.
7. At your request, the Fund will take such steps as may be necessary and
feasible to qualify shares for sale in states, territories or dependencies of
the United States of America, in the District of Columbia and in foreign
countries, in accordance with the laws thereof, and to renew or extend any such
qualification; provided however, that the Fund shall not be required to qualify
shares or to maintain the qualification of shares in any state, territory,
dependency, district or country where it shall deem such qualification
disadvantageous to the Fund.
2
<PAGE>
8. You agree that:
(a) Neither you nor any of your officers will take any long or short
position in the shares of the Fund, but this provision shall not prevent you or
your officers from acquiring shares of the Fund for investment purposes only;
(b) You shall furnish to the Fund any pertinent information required
to be inserted with respect to you as General Distributor within the purview of
the 1933 Act in any reports or registration required to be filed with any
governmental authority; and
(c) You will not make any representations inconsistent with the
information contained in the Registration Statement or Prospectus of the Fund
filed under the 1933 Act, as in effect from time to time.
9. The Fund will pay the cost of composition and printing of sufficient
copies of its Prospectus and financial statements as shall be required for
quarterly and annual distribution to its shareholders and the expense of
registering shares for sale under federal and state securities laws. You shall
pay the cost of printing the copies of the Fund's Prospectus and any sales
literature used by you in the public sale of the Fund's shares.
10. Unless earlier terminated pursuant to paragraph 11 hereof, this
Agreement shall remain in effect until two years from the date hereof. This
Agreement shall continue in effect from year to year thereafter provided that
such continuance shall be specifically approved at least annually (a) by the
Fund's Board of Trustees, including a vote of a majority of the Trustees who are
not parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such persons, cast in person at a meeting called for the purpose of
voting on such approval or (b) by the vote of the holders of a majority of the
outstanding voting securities of the Fund and by such a vote of the Trustees.
11. This Agreement may be terminated (a) by the General Distributor at any
time without penalty by giving sixty days' written notice (which notice may be
waived by the Fund); or (b) by the Fund at any time without penalty upon sixty
days' written notice to the General Distributor (which notice may be waived by
the General Distributor), provided that such termination by the Fund shall be
directed or approved by the Trustees or by the vote of the holders of a majority
of the outstanding voting securities of the Fund.
12. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall enure to the benefits of the parties hereto and
their respective successors, but this Agreement shall not be assigned by either
party and shall automatically terminated upon assignment.
3
<PAGE>
If the foregoing is in accordance with your understanding, kindly so
indicate by signing in the space provided below.
OCC ACCUMULATION TRUST
By:
------------------------------------
Title: Secretary
Accepted:
-----------------------------------
OCC DISTRIBUTORS
By:
-----------------------------------------
Title: President
4
<PAGE>
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
BY AND AMONG
OCC ACCUMULATION TRUST,
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY AND
OCC DISTRIBUTORS
This is an amendment to the February 21, 1995 Participation Agreement
("Agreement") among OCC Accumulation Trust (formerly Quest for Value
Accumulation Trust), American Enterprise Life Insurance Company and OCC
Distributors (formerly Quest for Value Distributors).
SCHEDULE 1 to the Agreement is amended to read as follows:
The following separate accounts of American Enterprise Life Insurance
Company are permitted in accordance with the provisions of this Agreement
to invest in Portfolios of the Fund shown in Schedule 2:
American Enterprise Variable Annuity Account, established July 15, 1987 as
used to fund the flexible premium variable annuity contracts known as the
AEL Personal Portfolio-SM- and AEL Personal Portfolio Plus.
SCHEDULE 2 to the Agreement is amended to read as follows:
The separate account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Managed Portfolio
U.S. Government Income Portfolio
Small Cap Portfolio
Equity Portfolio
OCC ACCUMULATION TRUST OCC DISTRIBUTORS
Signature: s/ Deborah Kaback Signature: s/ Thomas Duggan
------------------------ ------------------------
By s/ Deborah Kaback By s/ Thomas Duggan
-------------------------------- --------------------------------
Title: Secretary Title: Secretary
---------------------------- ----------------------------
AMERICAN ENTERPRISE LIFE ATTEST:
INSURANCE COMPANY
Signature: s/ Ryan Larson Signature: s/ William S. Stoltzman
------------------------ ------------------------
By s/ Ryan Larson By s/ William A. Stoltzman
-------------------------------- --------------------------------
Title: Vice President- Title: Vice President
Product Development ----------------------------
----------------------------
Date: October 15, 1997
---------------------
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
MONY LIFE INSURANCE COMPANY OF AMERICA
And
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
And
OCC DISTRIBUTORS
THIS AGREEMENT, effective the 16th day of September, 1994, by and
among MONY LIFE INSURANCE COMPANY OF AMERICA, an Arizona Corporation ("MONY
America"), on its own behalf and on behalf of MONY AMERICA VARIABLE ACCOUNT A
(the "MONY America Account"), a segregated asset account of MONY America named
in Schedule 1 to this Agreement, as Schedule 1 to this Agreement may be amended
from time to time, THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a New York
Mutual Life Insurance Company ("MONY"; MONY America and MONY hereinafter
collectively referred to as the "Company"), on its own behalf and on behalf of
MONY VARIABLE ACCOUNT A (the "MONY Account"; the MONY America Account and the
MONY Account hereinafter collectively referred to as the "Account"), a
segregated asset account of MONY named in Schedule 1 to this Agreement, OCC
ACCUMULATION TRUST (formerly known as 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 OCC DISTRIBUTORS
<PAGE>
(formerly known as 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
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
2
<PAGE>
WHEREAS, the Company has registered or will register certain variable
annuity contracts the purchase payments for which are allocated to sub-accounts
which purchase shares of the Fund (the "Contracts") under the 1933 Act; and
WHEREAS, the MONY AMERICA Account is a duly organized, validly
existing segregated asset account, established by resolution of the Board of
Directors of MONY America under the insurance laws of the State of Arizona, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the MONY Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Trustees of
MONY under the insurance laws of the State of New York, to set aside and invest
assets attributable to the Contracts; and
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:
3
<PAGE>
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 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; 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
4
<PAGE>
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 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
5
<PAGE>
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 nor any applicable
period permitted under the insurance or other applicable laws of any
jurisdiction in which the Company offers the Contracts. 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 2 offered by the then current prospectus of the
Fund in accordance with the 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 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.
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
6
<PAGE>
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 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 [this is a defined term earlier in agreement].
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act to the extent that the 1933 Act so
requires 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 the extent that the 1940 Act so requires to serve as segregated
investment accounts for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding, provided, however,
that should any of the Contracts no longer be available for sale to the public,
the Company issuing such Contract
7
<PAGE>
may, consistent with the requirements of the 1933 Act and the 1940 Act and
interpretations thereof by the Securities and Exchange Commission, discontinue
the filing of Post-Effective Amendments to such registrations and the
preparation and distribution of prospectuses and may deregister the Account.
For so long as Contracts are offered for sale to the public, 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. 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 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 held by
Contractholders. 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. In
the event that any of the Contracts are no longer
8
<PAGE>
available for sale to the public and the Fund shares are available to the
Account for purchase, the Fund shall make available prospectuses for the Fund
shares to the Company for distribution to contractowners permitting allocation
of purchase payments, or transfer of contract values, to subaccounts of the
Accounts which purchase shares of the Fund.
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 use its best efforts 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. The Company alone shall be responsible for informing the
Fund of any investment restrictions imposed by state insurance laws which are
applicable to the Fund. The Fund shall use its best efforts to comply with
all such restrictions and shall adjust its investments to comply with the
aforementioned state insurance laws upon written notice from the Company of
such requirements and changes, 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 in its
operations.
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
9
<PAGE>
are not interested persons of the Fund, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses, [and to obtain the prior written
consent of the Company.]
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, OpCap Advisors (formerly known as 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.
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.
10
<PAGE>
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 for the benefit of the Fund, 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 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.
2.12. The Fund represents and warrants that it, and any investment
adviser with whom it enters into or maintains an investment advisory
relationship, will comply with Section 17(j) of the 1940 Act, and that it will,
and will cause any investment adviser with whom it enters into or maintains an
investment advisory relationship, to provide the Company with a copy of Codes of
Ethics and any amendments thereto, and that it will advise the Company of any
violation of the Codes in connection with the Fund and actions taken with
respect to such violations [discuss other changes].
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Company's
expense [Fund cannot provide it as it is a marketing expense, Underwriter will
not provide it as that is not our deal], with as many copies of the Fund's
current prospectus 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 many copies of said
prospectus as necessary
11
<PAGE>
for distribution to existing contractowners or participants. If requested by
the Company in lieu thereof, the Fund shall provide such documentation including
a final copy of a current prospectus 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 of printing that portion of the prospectus for the Contracts consisting
of the Fund's prospectus.
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.
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
13
<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. Failure to object in writing within the fifteen
business days, after receipt of such material provided for under Section 4.1
shall be deemed to be use of such material with the consent of the Fund.
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
14
<PAGE>
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 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
Subaccounts of the Accounts which purchase shares of the Fund,
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
15
<PAGE>
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.
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, the adoption of a 12b-1 plan is not 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 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
16
<PAGE>
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 with 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
17
<PAGE>
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 Fund 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.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Trustees, that an irreconcilable material conflict
exists, the Company or other Participating Insurance Companies, the action or
actions of which caused the irreconcilable material conflict, shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to remedy or
eliminate
18
<PAGE>
the irreconcilable material conflict, up to and including: (1) redeeming the
shares 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 redeem
the Account's investment in the Fund and terminate this Agreement with
respect to such Account. Any such redemption 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 will redeem the Account's investment in the Fund and terminate
this Agreement with respect to such Account. Any such redemption 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
19
<PAGE>
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 or OpCap Advisors 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.
The cost of providing such reports, materials and data not otherwise prepared
will be borne by the Fund.
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
20
<PAGE>
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 trustees, directors,
officers, employees or agents and 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 registration
statement, prospectus or statement of additional
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
21
<PAGE>
statement, prospectus or statement of additional
information for the Contracts or in the Contracts
or sales literature or other promotional material
for the Contracts (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, Fund statement of additional
information 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
(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.
22
<PAGE>
(b) No party shall be entitled to indemnification if such loss,
age, liability or litigation is due to the willful misfeasance, bad
ss negligence or reckless disregard of duty by the party seeking
ation.
(c) The indemnified parties will promptly notify the Company of the
nt of any litigation or proceedings against them in connection with
ce or sale of the Fund shares or the Contracts or the operation of the
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
indemnify and hold harmless the Company and each of its directors, 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
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 Fund or sales literature or
other promotional material of the Fund (or any
amendment or supplement to any of the foregoing)
or of the Company relating to the Fund if approved
or deemed to be approved by the Fund pursuant to
Sections 4.1 and 4.2, 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
23
<PAGE>
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 or other
promotional material 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 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;
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<PAGE>
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
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
25
<PAGE>
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.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which
26
<PAGE>
the indemnification provided for in this Article VIII is due in accordance with
its terms but for any reason is held to be unenforceable with respect to a party
entitled to indemnification ("indemnified party" for purposes of this Section
8.4) pursuant to the terms of this Article VIII, then each party obligated to
indemnify pursuant to the terms of this Article VIII shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and litigations in such proportion as is
appropriate to reflect the relative benefits received by the parties to this
Agreement in connection with the offering of Fund shares to the Account and the
acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
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.
27
<PAGE>
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 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 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 Fund's or the Underwriter'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 and/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
28
<PAGE>
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 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
(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
29
<PAGE>
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) 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(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.
30
<PAGE>
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 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,
if given by the Fund or Underwriter, 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
31
<PAGE>
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.
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
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Secretary
The Mutual Life Insurance Company of New York
1740 Broadway
New York, NY 10019
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
32
<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
33
<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.
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<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.
COMPANY:
MONY LIFE INSURANCE COMPANY
OF AMERICA
SEAL By: s/ Kenneth M. Levin
------------------------------
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
SEAL By: s/ Victor Ugolin
------------------------------
FUND:
OCC ACCUMULATION TRUST
SEAL By: s/ Deborah Kaback
------------------------------
UNDERWRITER:
OCC DISTRIBUTORS
By: s/ Thomas Duggan
------------------------------
35
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust,
MONY Life Insurance Company of America,
The Mutual Life Insurance Company of New York,
and
OCC Distributors
The following separate accounts of MONY Life Insurance Company of America
and The Mutual Life Insurance Company of New York, respectively, are permitted
in accordance with the provisions of this Agreement to invest in Portfolios of
the Fund shown in Schedule 2:
(i) MONY Life Insurance Company of America
- MONY America Variable Account A
(ii) The Mutual Life Insurance Company of New York
- MONY Variable Account A
September 16, 1994
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust,
MONY Life Insurance Company of America,
The Mutual Life Insurance Company of New York,
and
OCC Distributors
The Separate Accounts shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Bond Portfolio
Equity Portfolio
Managed Portfolio
Money Market Portfolio
Small Cap Portfolio
September 16, 1994
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
RELIASTAR LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 8th day of August 1997 by
and among ReliaStar Life Insurance Company, a Minnesota 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"), OCC ACCUMULATION TRUST, an
open-end diversified management investment company organized under the laws of
the State of Massachusetts (hereinafter the "Fund") and OCC 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
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
<PAGE>
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 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 and variable life 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 Minnesota, to set aside and
invest assets attributable to the Contracts; and
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
2
<PAGE>
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 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; 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.
3
<PAGE>
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 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.
4
<PAGE>
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 2 offered by the then current prospectus of the
Fund in accordance with the 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
5
<PAGE>
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.
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.
6
<PAGE>
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 or will comply with applicable no-action positions
of the Securities and Exchange Commission staff. 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. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts or
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 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.
7
<PAGE>
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. 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;
however, neither the Company nor the Fund shall have any liability to each other
in connection with the provision of notice of or compliance with any such
restrictions. To the extent feasible and consistent with market conditions, the
Fund will adjust its investments to comply with the aforementioned state
insurance
8
<PAGE>
laws 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 after receipt of
such notice to make any such adjustment.
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.
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,
OpCap 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.
9
<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 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 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 many copies of said prospectus as necessary for distribution to existing
contractowners or participants. If requested by the Company in lieu thereof,
the Fund shall provide such documentation including a final copy of a current
prospectus set in type (or in
10
<PAGE>
computer format) 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
(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;
11
<PAGE>
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.
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 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
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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 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
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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. The Fund will
provide to the Company annual and semi-annual reports to shareholders in
computer format, if requested by the Company.
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 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.
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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 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 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
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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 accordance with guidelines provided by the Company prior to the
execution of this Agreement and as necessary thereafter. 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 with 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
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to
16
<PAGE>
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.
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
17
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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 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 will 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
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remedies any irreconcilable material conflict, but in no event will the Fund or
OpCap Advisors 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.
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
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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 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 registration statement, prospectus or
statement of additional 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
additional information for the Contracts or in the
Contracts or sales literature or other promotional
material for the Contracts (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, Fund
statement of additional information or sales literature
or other
20
<PAGE>
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
(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
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<PAGE>
(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 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 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 or other promotional
material 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
22
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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 procedures
related thereto specified in Article VI of this
Agreement except if such failure is a result of the
Company's failure to comply with the notification
procedures specified in Article VI); 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.
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(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
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
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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.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
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<PAGE>
parties to this Agreement in connection with the offering of Fund shares to the
Account and the acquisition, holding or sale of Fund shares by the Account, or
if such allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
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:
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(a) at the option of any party upon sixty days 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 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 Fund's or the Underwriter'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 and/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
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<PAGE>
(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 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
(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
28
<PAGE>
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) 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(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.
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<PAGE>
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 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,
if given by the Fund or Underwriter, need not be for more than 60 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
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allocating payments to a Portfolio that was otherwise available under the
Contracts, until 60 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
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Stewart Gregg, Esq.
Counsel
ReliaStar Financial Corporation
20 Washington Avenue South
5th floor
Minneapolis, MN 55401
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC 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; provided that each party
hereto may disclose such information to an affiliated company of the party if
the affiliated company agrees to treat such information as confidential.
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.
32
<PAGE>
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 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.
COMPANY:
RELIASTAR LIFE INSURANCE COMPANY
SEAL By: s/ John G. Turner
------------------------------
FUND:
OCC ACCUMULATION TRUST
SEAL By: s/ Deborah Kaback
------------------------------
UNDERWRITER:
OCC DISTRIBUTORS
By: s/ Peter Muratore
------------------------------
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, ReliaStar Life Insurance Company
and
OCC Distributors
The following separate accounts of ReliaStar Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
Select Variable Account
Select*Life Variable Account
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, ReliaStar Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Equity Portfolio
Global Equity Portfolio
Managed Portfolio
Small Cap Portfolio
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
RELIASTAR BANKERS SECURITY LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 8th day of August 1997 by
and among ReliaStar Bankers Security Life Insurance Company, a New York
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"),
OCC ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund")
and OCC 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 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 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 and variable life 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 New York, 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 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; 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
3
<PAGE>
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 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 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the
5
<PAGE>
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 or will comply with applicable no-action positions
of the Securities and Exchange Commission staff. 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. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts or
life insurance contracts under
7
<PAGE>
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 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. 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
8
<PAGE>
imposed by state insurance laws which are applicable to the Fund; however,
neither the Company nor the Fund shall have any liability to each other in
connection with the provision of notice of or compliance with any such
restrictions. 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, 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.
2.6. 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.
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.
9
<PAGE>
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap 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.
2.10. 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 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 as the Company may
reasonably request for use
10
<PAGE>
with prospective contractowners and applicants. The Underwriter shall print and
distribute, at the Fund's or Underwriter's expense, as many copies of said
prospectus as necessary for distribution to existing contractowners or
participants. If requested by the Company in lieu thereof, the Fund shall
provide such documentation including a final copy of a current prospectus set in
type (or in computer format) 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;
11
<PAGE>
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
(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.
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
12
<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
13
<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. The Fund will provide to the Company annual and
semi-annual reports to shareholders in computer format, if requested by the
Company.
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
14
<PAGE>
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.
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 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
15
<PAGE>
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 accordance with guidelines provided by the Company prior to the
execution of this Agreement and as necessary thereafter. 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 with 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,
16
<PAGE>
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.
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
17
<PAGE>
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 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 will 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
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<PAGE>
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 or OpCap Advisors 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.
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
19
<PAGE>
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 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 registration statement, prospectus or
statement of additional 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
additional information for the Contracts or in the
Contracts or sales literature or other
20
<PAGE>
promotional material for the Contracts (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, Fund
statement of additional information 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
(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.
21
<PAGE>
(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 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 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 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 or other promotional
material 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
22
<PAGE>
(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 procedures
related thereto specified in Article VI of this
Agreement except if such failure is a result of the
Company's failure to comply with the notification
procedures specified in Article VI); 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.
23
<PAGE>
(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
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
24
<PAGE>
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.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party
25
<PAGE>
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and litigations in such proportion
as is appropriate to reflect the relative benefits received by the parties to
this Agreement in connection with the offering of Fund shares to the Account and
the acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
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 sixty days advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
26
<PAGE>
(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 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 Fund's or the Underwriter'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 and/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
27
<PAGE>
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 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
(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
28
<PAGE>
(l) 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(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
29
<PAGE>
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 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,
if given by the Fund or Underwriter, need not be for more than 60 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
60 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
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Stewart Gregg, Esq.
Counsel
ReliaStar Financial Corporation
20 Washington Avenue South
5th floor
Minneapolis, MN 55401
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC 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; provided that each party
hereto may disclose such information to an affiliated company of the party if
the affiliated company agrees to treat such information as confidential.
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.
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<PAGE>
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 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.
COMPANY:
RELIASTAR BANKERS SECURITY LIFE
INSURANCE COMPANY
SEAL By: s/ John G. Turner
------------------------------
FUND:
OCC ACCUMULATION TRUST
SEAL By: s/ Deborah Kaback
------------------------------
UNDERWRITER:
OCC DISTRIBUTORS
By: s/ Peter Muratore
------------------------------
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, ReliaStar Bankers Security Life Insurance Company
and
OCC Distributors
The following separate accounts of ReliaStar Bankers Security Life
Insurance Company are permitted in accordance with the provisions of this
Agreement to invest in Portfolios of the Fund shown in Schedule 2:
ReliaStar Bankers Security Variable Life
Separate Account I
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, ReliaStar Bankers Security Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Equity Portfolio
Global Equity Portfolio
Managed Portfolio
Small Cap Portfolio
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
NORTHERN LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 8th day of August 1997 by
and among Northern Life Insurance Company, a Washington 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"), OCC ACCUMULATION TRUST, an
open-end diversified management investment company organized under the laws of
the State of Massachusetts (hereinafter the "Fund") and OCC 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 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 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 and variable life 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 Washington, 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 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; 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
3
<PAGE>
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
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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 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the
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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.
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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 or will comply with applicable no-action positions
of the Securities and Exchange Commission staff. 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. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts or
life insurance contracts under
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<PAGE>
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 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. 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
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<PAGE>
imposed by state insurance laws which are applicable to the Fund; however,
neither the Company nor the Fund shall have any liability to each other in
connection with the provision of notice of or compliance with any such
restrictions. 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, 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.
2.6. 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.
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.
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2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap 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.
2.10. 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 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 as the Company may
reasonably request for use
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with prospective contractowners and applicants. The Underwriter shall print and
distribute, at the Fund's or Underwriter's expense, as many copies of said
prospectus as necessary for distribution to existing contractowners or
participants. If requested by the Company in lieu thereof, the Fund shall
provide such documentation including a final copy of a current prospectus set in
type (or in computer format) 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;
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<PAGE>
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
(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.
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. The Fund will provide to the Company annual and
semi-annual reports to shareholders in computer format, if requested by the
Company.
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
14
<PAGE>
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.
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 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
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<PAGE>
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 accordance with guidelines provided by the Company prior to the
execution of this Agreement and as necessary thereafter. 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 with 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,
16
<PAGE>
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.
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
17
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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 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 will 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
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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 or OpCap Advisors 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.
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
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<PAGE>
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 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 registration statement, prospectus or
statement of additional 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
additional information for the Contracts or in the
Contracts or sales literature or other
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promotional material for the Contracts (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, Fund
statement of additional information 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
(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.
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(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 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 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 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 or other promotional
material 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
22
<PAGE>
(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 procedures
related thereto specified in Article VI of this
Agreement except if such failure is a result of the
Company's failure to comply with the notification
procedures specified in Article VI); 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.
23
<PAGE>
(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
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
24
<PAGE>
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.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party
25
<PAGE>
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and litigations in such proportion
as is appropriate to reflect the relative benefits received by the parties to
this Agreement in connection with the offering of Fund shares to the Account and
the acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
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 sixty days advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
26
<PAGE>
(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 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 Fund's or the Underwriter'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 and/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
27
<PAGE>
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 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
(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
28
<PAGE>
(l) 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(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
29
<PAGE>
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 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,
if given by the Fund or Underwriter, need not be for more than 60 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
60 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
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Stewart Gregg, Esq.
Counsel
ReliaStar Financial Corporation
20 Washington Avenue South
5th floor
Minneapolis, MN 55401
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC 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; provided that each party
hereto may disclose such information to an affiliated company of the party if
the affiliated company agrees to treat such information as confidential.
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.
32
<PAGE>
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 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.
COMPANY:
NORTHERN LIFE INSURANCE COMPANY
SEAL By: s/ John G. Turner
------------------------------
FUND:
OCC ACCUMULATION TRUST
SEAL By: s/ Deborah Kaback
------------------------------
UNDERWRITER:
OCC DISTRIBUTORS
By: s/ Peter Muratore
------------------------------
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, Northern Life Insurance Company
and
OCC Distributors
The following separate accounts of Northern Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
Separate Account One
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, Northern Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Equity Portfolio
Global Equity Portfolio
Managed Portfolio
Small Cap Portfolio
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
AMERICAN CENTURION LIFE ASSURANCE COMPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 17th day of September
1997 by and among American Centurion Life Assurance Company, a New York
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"), OCC ACCUMULATION TRUST, an open-end diversified management
investment company organized under the laws of the State of Massachusetts
(hereinafter the "Fund") and OCC 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 filed an application with the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the "Commission")
to request an order 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 "application for a mixed and shared funding
exemptive order"). The parties to this Agreement agree that the conditions or
undertakings specified in the application for a mixed and shared funding
exemptive order and that may be imposed on the Company, the Fund and/or the
Underwriter by virtue of the receipt of such order by the SEC shall be
incorporated herein by reference, as of the date such order is granted and such
parties agree to comply with such conditions and undertakings to the extent
applicable to each such party; 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
2
<PAGE>
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 New York, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the subaccounts of the Account
together 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 of 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 agent of the order
3
<PAGE>
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 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
4
<PAGE>
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 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
5
<PAGE>
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 2 offered by the then current prospectus of the
Fund in accordance with the 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 same day notice (by wire or telephone,
followed by written confirmation) 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
6
<PAGE>
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 calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Standard 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 separate account under applicable state law and
has registered the subaccounts of each Account together 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
7
<PAGE>
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. 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 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. The Fund makes no
8
<PAGE>
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, 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.
2.6. 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.
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.
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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,
OpCap 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.
2.10. 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 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 for the benefit of the Fund, 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 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.
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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 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 many copies of said prospectus as necessary for distribution to existing
contractowners or participants. If requested by the Company in lieu thereof,
the Fund shall provide such documentation including a final copy of a current
prospectus 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.
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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
(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.
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.
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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 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
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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 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
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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.
4.8. The Company agrees and acknowledges that Oppenheimer Capital is
the sole owner of the names and marks "OCC" and "OpCap" and that all use of any
designation comprised in whole or part of such names or marks 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 names or marks 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 names and marks "OCC" and "OpCap" 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 names or
marks.
ARTICLE V. FEES AND EXPENSE
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.
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<PAGE>
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 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 accordance with guidelines provided by the Company prior to the
execution of this Agreement and as necessary thereafter. In the event of a
breach of this Article VI by the Fund, it will take all
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<PAGE>
reasonable steps (a) to notify the Company of such breach and (b) to adequately
diversify the Fund so as to achieve compliance with 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
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 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 as delineated in the application for
a mixed and shared funding exemptive order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to
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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.
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 subaccounts 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 contract-owners, 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 affected
subaccount of the Account's investment in the Fund and terminate this Agreement
with respect to such subaccount of the Account. Any such withdrawal and
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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 will withdraw the affected subaccount of the Account's
investment in the Fund and terminate this Agreement with respect to such
subaccount of the 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 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 application for a mixed and shared
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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 application for a mixed and shared funding
exemptive order) on terms and conditions materially different from those
contained in the application for a mixed and shared funding exemptive order
and/or a Mixed and Shared Funding Exemptive Order, once issued, 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
(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, and 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 and any director, officer, employee or agent of the foregoing
(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
20
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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 registration statement, prospectus or
statement of additional 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
additional 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, Fund
statement of additional information 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
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(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.
(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 person, if any, who
controls or is associated with the Company within the meaning of such terms
under the federal securities laws and any director, officer, employee or agent
of the foregoing (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
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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 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 or 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
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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 procedures
related thereto specified in Article VI of this
Agreement except if such failure is a result of the
Company's failure to comply with the notification
procedures specified in Article VI); 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 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
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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 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
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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.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 8 is due
in accordance with its terms but for any reason is held to be unenforceable with
respect to a party entitled to indemnification ("indemnified party" for purposes
of this Section 8.4) pursuant to the terms of this Section 8, then each party
obligated to indemnify pursuant to the terms of this Section 8 shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities and litigations in such proportion as is
appropriate to reflect the relative benefits received by the parties to this
Agreement in connection with the offering of Fund shares to the Account and the
acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
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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, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
grant (including, but not limited to, a Mixed and Shared Funding Exemptive Order
received pursuant to the application for a mixed and shared 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 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 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 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
27
<PAGE>
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 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 receipt of any
necessary regulatory approvals and/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 successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
28
<PAGE>
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; 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) 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.
29
<PAGE>
(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, 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 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
30
<PAGE>
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,
if given by the Fund or Underwriter, 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.
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
31
<PAGE>
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
American Centurion Life Assurance Company
c/o American Express Financial Advisors Inc.
80 South Eighth Street
Minneapolis, MN 55402
Attention: President
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
Two World Financial Center
New York, NY 10080
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.
32
<PAGE>
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 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 and its seal to be hereunder affixed hereto as of the date
specified above.
ATTEST: COMPANY:
By: s/ Eric L. Marhounx AMERICAN CENTURION LIFE
-------------------- ASSURANCE COMPANY
SEAL By: s/ Ryan Lam
------------------------------
Fund:
OCC ACCUMULATION TRUST
SEAL By: s/ Deborah Kaback
------------------------------
UNDERWRITER:
OCC DISTRIBUTORS
SEAL By: s/ Peter Muratore
------------------------------
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, American Centurion Life Assurance Company
and
OCC Distributors
The following separate accounts of American Centurion Life Assurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
ACL Variable Annuity Account 2, established October 12, 1995 as used to fund the
ACL Personal Portfolio-SM-, a flexible premium variable annuity contract.
April 30, 1997
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, American Centurion Life Assurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Managed Portfolio
U.S. Government Income Portfolio
Date: September 17, 1997
<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. 7 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 14, 1997, relating to financial statements and financial highlights
of OCC Accumulation Trust - Equity Portfolio, OCC Accumulation Trust - Small
Cap Portfolio, OCC Accumulation Trust - Global Equity Portfolio, OCC
Accumulation Trust - Managed Portfolio, OCC Accumulation Trust - Bond
Portfolio, OCC Accumulation Trust - U.S. Government Income Portfolio and OCC
Accumulation Trust - Money Market Portfolio, each of which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report 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
November 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 1
<NAME> EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 19,004,230
<INVESTMENTS-AT-VALUE> 25,218,084
<RECEIVABLES> 35,216
<ASSETS-OTHER> 1,004
<OTHER-ITEMS-ASSETS> 52,668
<TOTAL-ASSETS> 25,306,972
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,262
<TOTAL-LIABILITIES> 14,262
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,635,644
<SHARES-COMMON-STOCK> 771,634
<SHARES-COMMON-PRIOR> 659,810
<ACCUMULATED-NII-CURRENT> 139,630
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 303,582
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,213,854
<NET-ASSETS> 25,292,710
<DIVIDEND-INCOME> 149,752
<INTEREST-INCOME> 97,795
<OTHER-INCOME> 0
<EXPENSES-NET> 107,917
<NET-INVESTMENT-INCOME> 139,630
<REALIZED-GAINS-CURRENT> 303,581
<APPREC-INCREASE-CURRENT> 2,471,711
<NET-CHANGE-FROM-OPS> 2,914,922
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 188,895
<DISTRIBUTIONS-OF-GAINS> 672,433
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 111,055
<NUMBER-OF-SHARES-REDEEMED> 28,038
<SHARES-REINVESTED> 28,807
<NET-CHANGE-IN-ASSETS> 5,449,712
<ACCUMULATED-NII-PRIOR> 188,895
<ACCUMULATED-GAINS-PRIOR> 672,434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,822
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 108,618
<AVERAGE-NET-ASSETS> 21,885,297
<PER-SHARE-NAV-BEGIN> 30.07
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 3.81
<PER-SHARE-DIVIDEND> 0.28
<PER-SHARE-DISTRIBUTIONS> 1.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.78
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 2
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 51,773,508
<INVESTMENTS-AT-VALUE> 59,041,978
<RECEIVABLES> 517,387
<ASSETS-OTHER> 1,406
<OTHER-ITEMS-ASSETS> 7,817
<TOTAL-ASSETS> 59,568,588
<PAYABLE-FOR-SECURITIES> 589,999
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,920
<TOTAL-LIABILITIES> 619,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,783,785
<SHARES-COMMON-STOCK> 2,383,326
<SHARES-COMMON-PRIOR> 1,515,250
<ACCUMULATED-NII-CURRENT> 129,800
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,766,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,268,470
<NET-ASSETS> 58,948,669
<DIVIDEND-INCOME> 153,844
<INTEREST-INCOME> 189,707
<OTHER-INCOME> 0
<EXPENSES-NET> 213,751
<NET-INVESTMENT-INCOME> 129,800
<REALIZED-GAINS-CURRENT> 2,775,415
<APPREC-INCREASE-CURRENT> 4,013,251
<NET-CHANGE-FROM-OPS> 6,918,466
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 226,925
<DISTRIBUTIONS-OF-GAINS> 1,600,322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 885,839
<NUMBER-OF-SHARES-REDEEMED> 101,620
<SHARES-REINVESTED> 83,857
<NET-CHANGE-IN-ASSETS> 24,691,998
<ACCUMULATED-NII-PRIOR> 226,925
<ACCUMULATED-GAINS-PRIOR> 1,591,521
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 214,577
<AVERAGE-NET-ASSETS> 43,502,064
<PER-SHARE-NAV-BEGIN> 22.61
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 3.14
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 0.92
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.73
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 3
<NAME> MANAGED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 228,560,923
<INVESTMENTS-AT-VALUE> 292,510,549
<RECEIVABLES> 376,125
<ASSETS-OTHER> 4,301
<OTHER-ITEMS-ASSETS> 20,234
<TOTAL-ASSETS> 292,911,209
<PAYABLE-FOR-SECURITIES> 9,303,187
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 202,361
<TOTAL-LIABILITIES> 9,505,548
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,208,724
<SHARES-COMMON-STOCK> 7,175,255
<SHARES-COMMON-PRIOR> 4,991,370
<ACCUMULATED-NII-CURRENT> 1,561,847
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,685,464
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 63,949,626
<NET-ASSETS> 283,405,661
<DIVIDEND-INCOME> 1,298,226
<INTEREST-INCOME> 1,254,905
<OTHER-INCOME> 0
<EXPENSES-NET> 991,283
<NET-INVESTMENT-INCOME> 1,561,848
<REALIZED-GAINS-CURRENT> 4,685,469
<APPREC-INCREASE-CURRENT> 24,338,046
<NET-CHANGE-FROM-OPS> 30,585,363
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,161,819
<DISTRIBUTIONS-OF-GAINS> 6,639,642
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,214,230
<NUMBER-OF-SHARES-REDEEMED> 274,288
<SHARES-REINVESTED> 243,943
<NET-CHANGE-IN-ASSETS> 102,677,567
<ACCUMULATED-NII-PRIOR> 2,161,818
<ACCUMULATED-GAINS-PRIOR> 6,639,637
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 888,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 991,981
<AVERAGE-NET-ASSETS> 223,985,374
<PER-SHARE-NAV-BEGIN> 36.21
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 4.73
<PER-SHARE-DIVIDEND> 0.40
<PER-SHARE-DISTRIBUTIONS> 1.22
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 39.5
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACUMULATION TRUST
<SERIES>
<NUMBER> 4
<NAME> BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997<F1>
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-27-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 262938
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38995
<OTHER-INCOME> 0
<EXPENSES-NET> 5603
<NET-INVESTMENT-INCOME> 33392
<REALIZED-GAINS-CURRENT> (29222)
<APPREC-INCREASE-CURRENT> (12600)
<NET-CHANGE-FROM-OPS> (8430)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33392
<DISTRIBUTIONS-OF-GAINS> 10977
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1176
<NUMBER-OF-SHARES-REDEEMED> 268825
<SHARES-REINVESTED> 4711
<NET-CHANGE-IN-ASSETS> (2497446)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 10839
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2801
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8849
<AVERAGE-NET-ASSETS> 2377871
<PER-SHARE-NAV-BEGIN> 9.5
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> (.18)
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>There was an order of substitution where all assets were
redeemed on March 27, 1997 from Bond Portfolio (Series 4) and
subsequently subscribed into U.S. Government Income Portfolio
(Series 6)
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 5
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 5,271,364
<INVESTMENTS-AT-VALUE> 5,271,364
<RECEIVABLES> 0
<ASSETS-OTHER> 585
<OTHER-ITEMS-ASSETS> 5,443
<TOTAL-ASSETS> 5,277,392
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,667
<TOTAL-LIABILITIES> 23,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,253,744
<SHARES-COMMON-STOCK> 5,253,743
<SHARES-COMMON-PRIOR> 5,279,054
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,253,725
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 129,999
<OTHER-INCOME> 0
<EXPENSES-NET> 23,303
<NET-INVESTMENT-INCOME> 106,696
<REALIZED-GAINS-CURRENT> (6)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 106,690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 106,696
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,103,920
<NUMBER-OF-SHARES-REDEEMED> 2,229,157
<SHARES-REINVESTED> 99,926
<NET-CHANGE-IN-ASSETS> (25,317)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,477
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,950
<AVERAGE-NET-ASSETS> 4,777,776
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 6
<NAME> US GOVT INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 7
<NAME> GLOBAL EQUITY PORTFOLIO
<S> <C>
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