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November 5, 1997
Supplement to the
Prospectus dated May 1, 1997 of
OCC Accumulation Trust
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 OCC Accumulation Trust (the "Trust").
A new Investment Advisory Agreement (on identical terms as the previous
Investment Advisory Agreement) between the Trust and OpCap Advisors became
effective on November 5, 1997. The new Investment Advisory Agreement was
approved by the shareholders of each Portfolio of the Trust 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 managing 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 C. 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
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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. 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.
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Statement of Additional Information
OCC ACCUMULATION TRUST
One World Financial Center
New York, NY 10281
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated May 1, 1997, as
supplemented November 5, 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 MAY 1, 1997, AS
SUPPLEMENTED NOVEMBER 5, 1997.
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TABLE OF CONTENTS
Page
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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
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INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
liquidity of an investment in such obligations. The Money Market Portfolio will
not invest more than 5% of its total assets in collateralized mortgage
obligations. Investments will only be made in collateralized mortgage
obligations which are of high quality, as determined by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus (10% limit on illiquid investments for
Money Market Portfolio).
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing
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basis, OpCap Advisors (the "Manager") will consider the earning power, cash flow
and other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. The Portfolios will not invest more than 5% of
their total assets in variable rate notes. Variable rate notes are subject to
the Portfolios' investment restrictions on illiquid securities unless such notes
can be put back to the issuer on demand within seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. The
Portfolio may, within the limits set forth in the Prospectus, purchase bank
obligations which are fully insured as to principal by the FDIC. Currently, to
remain fully insured as to principal, these investments must be limited to
$100,000 per bank; if the principal amount and accrued interest together exceed
$100,000, the excess principal amount and accrued interest will not be insured.
Insured bank obligations may have limited marketability. Unless the Board of
Trustees determines that a readily available market exists for such obligations,
a Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus for each Portfolio (10% limit for
illiquid investments for Money Market Portfolio) unless such obligations are
payable at principal amount plus accrued interest on demand or within seven days
after demand.
LOWER RATED BONDS. Each Portfolio except for the Money Market Portfolio
may invest up to 5% of its assets in bonds rated below Baa3 by Moody's Investors
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"). These
securities are commonly known as "junk bonds." Securities rated less than Baa
by Moody's or BBB- by S&P are classified as non-investment grade securities and
are considered speculative by those rating agencies. It is the Fund's policy
not to rely exclusively on ratings issued by credit rating agencies but to
supplement such ratings with the Manager's own independent and ongoing review of
credit quality. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield securities market in the 1980s
had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized
that an economic downturn or increase in interest rates is likely to have a
negative effect on (i) the high yield bond market, (ii) the value of high yield
securities and (iii) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. The market for junk bonds may be less
liquid than the market for investment grade bonds. In periods of reduced market
liquidity, junk bond prices may become more volatile and may experience sudden
and substantial price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such conditions, a
Portfolio may find it difficult to value its junk bonds accurately. Under such
conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily on
the judgment of the Fund's Board of Trustees. Prices for junk bonds also may be
affected by legislative and regulatory developments. For example, new federal
rules require that savings and loans gradually reduce their holdings of
high-yield securities. Also, from time to time, Congress has considered
legislation to restrict or eliminate the corporate tax deduction for interest
payments or to regulate corporate restructurings such as takeovers, mergers or
leveraged buyouts. Such legislation, if enacted, may depress the prices of
outstanding junk bonds.
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DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll
files for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, Small Cap and
Equity Portfolios may engage in options and futures. Information about the
options and futures transactions these Portfolios may enter into is set forth
below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified 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.
5
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INFORMATION ON PUTS AND CALLS. The Small Cap and Equity Portfolios may
write calls on individual securities. The Global Equity Portfolio is authorized
to write covered put and call options and purchase put and call options on the
securities in which it may invest. When a portfolio writes a call, it receives
a premium and agrees to sell the callable securities to a purchaser of a
corresponding call during the call period (usually not more than 9 months) at a
fixed exercise price (which may differ from the market price of the underlying
securities) regardless of market price changes during the call period. If the
call is exercised, the portfolio forgoes any possible profit from an increase in
market price over the exercise price. A portfolio may, in the case of listed
options, purchase calls in "closing purchase transactions" to terminate a call
obligation. A profit or loss will be realized, depending upon whether the net of
the amount of option transaction costs and the premium received on the call
written is more or less than the price of the call subsequently purchased. A
profit may be realized if the call lapses unexercised, because the portfolio
retains the underlying security and the premium received. If, due to a lack of a
market, a portfolio could not effect a closing purchase transaction, it would
have to hold the callable securities until the call lapsed or was exercised. The
Fund's Custodian, or a securities depository acting for the Custodian, will act
as the portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC") in connection with listed calls, as to the securities on
which the portfolio has written calls, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the portfolio's
entering into a closing purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the portfolio will lose its
premium payment and the right to purchase the underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the securities underlying an option it has
written, in accordance with the terms of that option as written, a portfolio
could lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Portfolios will engage in OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the portfolio has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the portfolio assets used to "cover" the OTC option will be
considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the portfolio for 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
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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 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
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options of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. A portfolio's option activities
may affect its turnover rate and brokerage commissions. The exercise of calls
written by a portfolio may cause the portfolio to sell its securities to cover
the call, thus increasing its turnover rate in a manner beyond the portfolio's
control. The exercise of puts on securities or futures will increase portfolio
turnover. Although such exercise is within the portfolio's control, holding a
put might cause a portfolio to sell the underlying investment for reasons which
would not exist in the absence of the put. A portfolio will pay a brokerage
commission every time it purchases or sells a put or a call or purchases or
sells a related investment in connection with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Small Cap and Equity Portfolios may
purchase and write call and put options on futures contracts which are traded on
an exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right (in return for the premium paid) to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
term of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option is accompanied
by delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract at
the time of exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium 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.
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The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may be
required to make additional payments during the term of the contract to its
broker. Such payments would be required where during the term of a stock index
futures contract purchased by the Portfolio, the price of the underlying stock
index declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by the
Portfolio resulting in a net long position, an amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's custodian, for the benefit of the
Portfolio, to collateralize the position and thereby insure that the use of such
futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the price of the stock index future moves less than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective, but, if the price of the securities being hedged has moved in
an unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction this advantage will be partially offset by the future. If
the price of the futures moves more than the price of the stock the Portfolio
will experience a loss or a gain on the future which will not be completely
offset by movement in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the stock index futures,
the Portfolio may buy or sell stock index futures in a 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
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the futures are based. It is also possible that if the Portfolio hedges against
the possibility of a decline in the market adversely affecting stocks it holds
and stock prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its stock which it had hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may also have to sell securities at a
time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, the value of stock index futures contracts as a
hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used 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.
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REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. Another test is that less than 30% of its gross
income must be derived from gains realized on the sale of securities held for
less than three months. In connection with the 90% test, recent amendments to
the Internal Revenue Code specify that income from options, futures and other
gains derived from investments in securities is qualifying income under the 90%
test. Due to the 30% limitation, each Portfolio will limit the extent to which
it engages in the following activities, but except as otherwise set forth herein
or in the Prospectus, will not be precluded from them: (i) selling investments,
including futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Portfolio; (ii) writing or
purchasing calls on investments held less than three months; (iii) purchasing
calls or puts which expire in less than three months; (iv) effecting closing
transactions with respect to calls or puts purchased less than three months
previously; and (v) exercising puts or calls held by a Portfolio for less than
three months.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked to market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section
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1256 contracts sold by a portfolio during the year, and the resulting gain or
loss will be deemed to consist of 60% long-term capital gain or loss and 40%
short-term capital gain or loss. A portfolio may elect to exclude certain
transactions from the mark-to-market rule although doing so may have the effect
of increasing the relative proportion of short-term capital gain (taxable as
ordinary income) and/or increasing the amount of dividends that must be
distributed annually to meet income distribution requirements, currently at 98%,
to avoid payment of federal excise tax.
It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.
INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Small Cap and Managed Portfolios
may purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or represented by American depository receipts
listed on a domestic securities exchange or traded in a domestic or foreign
over-the-counter market. There is no limit on the amount of such foreign
securities that the Portfolios might acquire. These Portfolios will hold
foreign currency in connection with the purchase or sale of securities on a
foreign securities exchange. To the extent that foreign currency is so held,
there may be a risk due to foreign currency exchange rate fluctuations. Such
foreign currency and foreign securities will be held by the Fund's custodian
bank, or by a foreign branch of a U.S. bank, acting as subcustodian, on behalf
of the Portfolio. The custodian bank will hold such foreign securities pursuant
to such arrangements as are permitted by applicable foreign and domestic law and
custom.
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Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
connection with the exchange of currency. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies are generally not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Most foreign stock markets have substantially less volume than the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable domestic companies. There is
generally less government regulation of foreign stock exchanges, brokers, and
listed companies than there is in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could adversely affect investment in securities of issuers
located in those countries. Individual foreign economies may differ favorable
or unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. If it should become
necessary, the Portfolios would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a United States issuer.
INVESTMENTS IN EASTERN EUROPE. Investments in Eastern Europe are
speculative and involve a high degree of risk of loss. The emergence of Eastern
European capital markets is in part a function of the policies of the former
Gorbachev administration. With the recent change in power and restructuring of
the Soviet Union there is no assurance that such markets will continue to
constitute a viable investment opportunity for the Portfolios and there may be a
high degree of risk of expropriation without compensation. The governments of a
number of Eastern European countries previously expropriated large quantities of
private property. The claims of many property owners against those governments
were never finally settled. There is no assurance that such expropriation will
not occur again. If such expropriation were to recur, the Portfolios could lose
all or a substantial portion of their investments in such countries. Further,
no accounting standards comparable to those in the U.S. exist in Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into United States dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders of
the Portfolios. Presently the Global Equity Portfolio is the only Portfolio
which intends to invest in these types of securities.
The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such countries. These authorities may not be qualified to
act as foreign custodians under the 1940 Act and as a result, the Portfolios
would not be able to invest in the countries in the absence of exemptive relief
from the Securities and Exchange Commission. In addition, the risk of loss
through government confiscation may be increased in such countries.
FOREIGN CURRENCY TRANSACTIONS. The Global Equity, Equity, Small Cap and
Managed Portfolios do not intend to speculate in foreign currency. When a
Portfolio agrees to purchase or sell a security in a foreign market it will
generally be obligated to pay or entitled to receive a specified amount of
foreign currency and will then generally convert dollars to that currency in the
case of a purchase or that currency to dollars in the case of a sale. The
Global Equity, Equity, Small Cap and
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Managed Portfolios intend to conduct their foreign currency exchange
transactions on a spot basis (i.e., cash) at the spot rate prevailing in the
foreign currency exchange market or through entering into forward foreign
currency contracts ("forward contracts") to purchase or sell foreign currencies.
Such Portfolios may enter into forward contracts in order to lock in the U.S.
dollar amount they must pay or expect to receive for a security they have agreed
to buy or sell or with respect to their positions when the Portfolios believe
that a particular currency may change unfavorably compared to the U.S. dollar.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating them to purchase, on
the same settlement date, the same amount of foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
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
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treatment. In general, therefore, Internal Revenue Code Section 988 gains or
losses will increase or decrease the amount of the Portfolio's investment
company taxable income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Portfolio's net
capital gain. Additionally, if Internal Revenue Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Portfolio
would not be able to make any ordinary income distributions.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees in accordance with such Rules. Such determination
will be made pursuant to such Rules following a consideration of a number of
factors, including, but not limited to, the reliability and financial stability
of the institution; the ability of the institution to perform custodial services
for the Fund; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of the
Portfolio's assets. However, no assurances can be given that the trustees'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes (including
currency blockage), confiscations or any other loss of assets that would affect
assets of the Portfolio will not occur, and shareholders bear the risk of losses
arising from those or other similar events.
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If 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,
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security selection is designed to reduce risk through a value oriented approach
in which emphasis is placed on identifying well-managed companies which, in the
case of the Global Equity Portfolio, represent exceptional values in terms of
such factors as assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively. To the extent a Portfolio invests in securities in bearer form it
may be more difficult to recover securities in the event such securities are
lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. The U.S. Treasury has issued
proposed regulations which establish a mark-to-market regime that allows a
regulated investment company ("RIC") to avoid most, if not all, of the
difficulties posed by the PFIC rules. In any event, it is not anticipated that
any taxes on a Portfolio with respect to investments in PFIC's would be
significant.
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
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repurchase agreements; or (c) by lending its portfolio securities, not in excess
of 33% of the value of a Portfolio's total assets, made in accordance with
guidelines adopted by the Fund's Board of Trustees, including maintaining
collateral from the borrower equal at all times to the current market value of
the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
3. Pledge its assets or assign or otherwise encumber them in excess of
10% of its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in the
Prospectus.
4. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
5. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
6. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
7. Engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
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.
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3. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities).
RESTRICTIONS APPLICABLE TO THE EQUITY, MANAGED, GLOBAL EQUITY AND SMALL CAP
PORTFOLIOS ONLY. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Managed, Global Equity and/or Small Cap
Portfolios; however, each Portfolio will attempt to dispose in an orderly
fashion of any securities received under these circumstances to the extent that
such securities, together with other unmarketable securities, exceed 15% of that
Portfolio's total assets.
TRUSTEES AND OFFICERS
The trustees and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. The address
of each is One World Financial Center, New York, New York 10281, except as
noted. As of June 20, 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.
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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 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
19
<PAGE>
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 for 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.
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.
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.
RICHARD GLASEBROOK, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
JOHN GIUSIO, VICE PRESIDENT
20
<PAGE>
Vice President, Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc.,
an open-end investment company; formerly Vice President, Salomon Brothers.
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.
DEBORAH KABACK, SECRETARY
Senior Vice President and Deputy General Counsel, Oppenheimer Capital; Secretary
of OCC Cash Reserves, Inc.^ , an open-end investment company.
TIMOTHY MCCORMACK, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; formerly Security Analyst at U.S. Trust
Co.; formerly Security Analyst at Gabelli and Company.
RICHARD L. PETEKA, ASSISTANT TREASURER
Vice President, Oppenheimer Capital; Assistant Treasurer of OCC Cash Reserves,
Inc., an open-end investment company.
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.
21
<PAGE>
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
Paul Clinton $7,050 0 0 $71,294.25
Thomas Courtney $6,600 0 0 $68,594.25
Lacy Herrmann $7,050 0 0 $73,556.75
Joseph La Motta 0 0 0 0
George Loft $7,050 0 0 $80,656.75
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 June 20, 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.
22
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF JUNE 20, 1997(1)
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED
MARKET INCOME EQUITY CAP
- --------------------------------------------------------------------------------
The Mutual Life
Insurance Company 58.74% 35.38% --- 13.92% 7.30% 21.54%
of New York (New
York, NY) & The
MONY Life
Insurance Company
of America
(New York, NY)
- --------------------------------------------------------------------------------
Provident Mutual
Life Insurance --- --- --- 68.74% 28.37% 19.74%
Company
(Philadelphia, PA)
& Providentmutual
Life and Annuity
Company of America
(Newark, DE)
- --------------------------------------------------------------------------------
Connecticut General
Life Insurance 39.11% --- 100.00% 17.34% 15.13% 26.13%
Company & CIGNA
Life Insurance
Company
(Hartford, CT)
- --------------------------------------------------------------------------------
Providian Life
and Health --- 28.52% --- --- 20.48% 8.12%
Insurance Company
(Frazer, PA)
- --------------------------------------------------------------------------------
American
Enterprise Life --- 29.80% --- --- 2.24%
Insurance Company
(Indianapolis, Ind.)
- --------------------------------------------------------------------------------
Oppenheimer
Capital
(New York, NY) 2.15% 6.30% --- --- --- ---
- --------------------------------------------------------------------------------
IL Annuity and
Insurance Company
(Indianapolis, IN) --- --- --- --- 1.99% 1.34%
- --------------------------------------------------------------------------------
PRUCO Life
Insurance Company --- --- --- --- 26.73% 20.89%
of New Jersey and
PRUCO Life
Insurance Company
(Newark, NJ)
- --------------------------------------------------------------------------------
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 June 20, 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 contractholder held units equivalent to 5% or more of the shares of any
Portfolio of the Fund as of June 20, 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 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 Bond Portfolios will be
principal transactions at net prices, those Portfolios pay no brokerage
commissions; however prices of debt obligations reflect mark-ups and mark-downs
which constitute compensation to the executing dealer. The Portfolios will pay
brokerage commissions on transactions in listed options and equity securities.
Prices of securities purchased from underwriters of new issues include a
commission or concession paid by the issuer to the underwriter, and prices of
debt securities purchased from dealers include a spread between the bid and
asked prices. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers during the course
of an underwriting in return for their brokerage and research services, which
are intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to the
Fund and/or other accounts of the Manager; information received in connection
with directed orders of other accounts managed by the Manager or its affiliates
may or may not be useful to the Fund. Such information may be in written or
oral form and includes information on particular companies and industries as
well as market, economic or institutional activity areas. It serves to broaden
the scope and supplement the research activities of the Manager, to make
available additional views for consideration and comparison, and to enable the
Manager to obtain market information for the valuation of securities held by the
Fund. For the year ended December 31, 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 following table presents information as to the allocation of brokerage
commissions paid to CIBC Oppenheimer Corp., ("CIBC Oppenheimer"), formerly an
affiliated broker-dealer, 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
- ---------------------------------------------------------------------------------------------------------
<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 51.28 50.51
- ------------------------------------------------------------------------------------------
MANAGED 5,133,805 19,748,754 50,188,690 66.60 47.05 59.01
- ------------------------------------------------------------------------------------------
SMALL CAP 1,305,205 3,948,081 8,870,059 30.14 32.34 45.35
- ------------------------------------------------------------------------------------------
GLOBAL EQUITY -- 450,584 4,995,531 -- 16.02 33.58
- ------------------------------------------------------------------------------------------
</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 New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the
27
<PAGE>
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 Securities and Exchange Commission under the 1940 Act (the "Rule") which
permits it to stabilize the
28
<PAGE>
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 Money Market Portfolio will be declared on each day the NYSE is
open for business to shareholders of
29
<PAGE>
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 annually.
OTHER PORTFOLIOS. The dividend policies of the U.S. Government Income,
Equity, 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 net capital loss carry
forward. 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 $7,891
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 computation may not be the same as the dividends
actually declared, as the capital changes in question
30
<PAGE>
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 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 considered before using yield information
as a basis for comparison with other investments. An
31
<PAGE>
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 advisory fees and reimbursement of other expenses by the
Manager. Had the waiver and reimbursement not been in effect during the period,
the yield would have been 4.86% for the U.S. Government Income Portfolio.
Current yield is calculated according to the following formula:
x 6
YIELD = 2(-- + 1) - 1
cd
Where:
x = daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield does not reflect capital gains or losses, non-recurring or irregular
income. Gain or loss attributable to actual monthly paydowns on mortgage or
other receivables-backed obligations purchased at a discount or premium is
reflected as an increase or decrease in interest income during the period.
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, 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, SMALL CAP, U.S. GOVERNMENT
INCOME AND GLOBAL EQUITY PORTFOLIOS OF OCC ACCUMULATION TRUST(1,2)
Portfolio For the one year For the five year For the period
--------- period ended period ended from inception
December 31, December 31, December 31,
1996 1996 1996*
---- ---- -----
Equity 23.36% 17.70% 16.52%
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%
*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) 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
34
<PAGE>
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
