<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1997
Registration No. 33-78944
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X ]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5
OCC ACCUMULATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE WORLD FINANCIAL CENTER, NEW YORK, NY 10281
(Address of Principal Executive Offices)
(212) 374-1600
(Registrant's Telephone Number)
Thomas E. Duggan, Esq.
Oppenheimer Capital
One World Financial Center
New York, NY 10281
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to [X] on May 1, 1997 pursuant to
paragraph (b) paragraph (b)
[ ] 60 days after filing pursuant to [ ] pursuant to paragraph (a)(1)
paragraph (a)(1)
[ ] 75 days after filing pursuant to [ ] pursuant to paragraph (a)(2)
paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the Investment
Company Act of 1940 and has filed its report pursuant to that Rule for the year
ended December 31, 1996 on February 19, 1997.
<PAGE>
CROSS REFERENCE SHEET
Form N-1A
Item
Part A Caption Prospectus
- ------ ------- ----------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of Registrant Investment Objectives and
Policies; Additional Information
on Investment Objectives and
Policies; Additional Information
5. Management of the Fund Management of the Fund; Addi-
tional Information; Investment
Techniques
5A. Management's Discussion of Fund Not Applicable
Performance
6. Capital Stock and Other Securities Determination of Net Asset Value;
Purchase of Shares; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
Statement of Additional
Part B Caption Information
- ------ ------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
13. Investment Objectives and Policies Investment of Assets; Investment
Restrictions
<PAGE>
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Trustees and Officers; Control
Holders of Securities Persons
16. Investment Advisory and Other Investment Management and Other
Services Services; Additional Information
17. Brokerage Allocation Investment Management and Other
Services
18. Capital Stock and Other Securities Additional Information
19. Purchase, Redemption and Pricing Determination of Net Asset Value
of Securities
20. Tax Status Investment of Assets; Dividends,
Distributions and Taxes;
Additional Information
21. Underwriters Additional Information
22. Calculations of Performance Data Portfolio Yield and Total Return
Information
23. Financial Statements Financial Statements
<PAGE>
OCC ACCUMULATION TRUST
One World Financial Center, New York, New York 10281
OCC ACCUMULATION TRUST (formerly known as Quest for Value Accumulation Trust,
the "Fund") is a registered open-end diversified management investment company
offering several investment alternatives. It permits an investor the
flexibility of choosing among different investment objectives, through the
following six Portfolios (the "Portfolios"), each of which is a separate series
of shares of beneficial interest of the Fund ("Shares"). The investment
objective of each Portfolio is as follows:
EQUITY PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities selected on the basis of a value
oriented approach to investing.
SMALL CAP PORTFOLIO: Capital appreciation through investment in a diversified
portfolio of equity securities of companies with market capitalizations of under
$1 billion.
GLOBAL EQUITY PORTFOLIO: Long term capital appreciation through a global
investment strategy primarily involving equity securities.
MANAGED PORTFOLIO: Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on management's assessments of relative
investment values.
U.S. GOVERNMENT INCOME PORTFOLIO: High current income together with the
protection of capital through investment of securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities.
MONEY MARKET PORTFOLIO: Maximum current income consistent with stability of
principal and liquidity through investment in a portfolio of high quality money
market instruments. ALTHOUGH THE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN ITS
SHARE PRICE AT $1.00, AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NOT
GUARANTEED OR INSURED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL MAINTAIN A CONSTANT PRICE OF $1.00 PER SHARE.
The Fund is an investment vehicle for variable annuity and variable life
insurance contracts of various life insurance companies, and qualified pension
and retirement plans ("Qualified Plans"). Shares of the Fund are currently sold
to variable accounts of various life insurance companies for the purpose of
funding variable annuity and variable life insurance contracts (the
"Contracts"). These variable accounts (the "Variable Accounts") invest in
Shares of the Fund in accordance with allocation instructions received from
owners (the "Contractowners") of the Contracts. Allocation rights are further
described in the accompanying prospectus for the Variable Accounts. The
Variable Accounts will redeem Shares to the extent necessary to provide benefits
under the Contracts. Certain Portfolios may not be available for investment
with respect to certain Contracts offered by certain life insurance companies.
Please check with your insurance company for available Portfolios.
It is possible, although not presently anticipated, that a material
conflict could arise between and among the various variable accounts which
invest in Shares of the Fund and the Qualified Plans, which may, in the future
invest in Shares of the Fund. Such conflict could cause the liquidation of
assets of one or more of the Fund Portfolios to raise cash at times not
otherwise deemed advantageous by the Fund Manager. See "Management of the
Fund," page 22.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing, must be accompanied by a
current prospectus for the Variable Accounts and both should be retained for
future reference. A Statement of Additional Information dated May 1, 1997 (the
"Additional Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to your broker
or by contacting the Fund at the address listed in this Prospectus. The
Additional Statement (which is incorporated in its entirety by reference in this
Prospectus) contains more detailed information about the Fund and its
management, including more complete information about certain risk factors.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
VARIABLE ACCOUNTS. THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
OPCAP ADVISORS
Investment Manager
Prospectus dated May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . 11
Equity Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Small Cap Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Global Equity Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S. Government Income Portfolio. . . . . . . . . . . . . . . . . . . . 12
Money Market Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . 13
Managed Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Additional Information on Investment Objectives and Policies . . . . . . . . 14
Investment Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 22
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
State Law Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . 23
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2
<PAGE>
PROSPECTUS SUMMARY
THE FUND
The Fund is a Massachusetts business trust which issues its shares in series as
separate classes of shares of beneficial interest. There are currently six
series, each of which is designated as a "Portfolio". Together, the six
Portfolios are designed to enable investors to choose a number of investment
alternatives to achieve their financial goals and to shift assets conveniently
among Portfolios when and if their investment aims or perception of the
marketplace change.
The Fund commenced operations on September 16, 1994 when an investment company
then called Quest for Value Accumulation Trust, with portfolios corresponding to
five of the current six portfolios of the Fund, was effectively divided into two
investment funds, the original investment company, whose name was changed, and
the Fund.
INVESTMENT OBJECTIVES AND RESTRICTIONS
The investment objective of each of the Portfolios is set forth on the cover
page of this Prospectus. These objectives are described in more detail under
the heading "Investment Objectives and Policies." Although each Portfolio will
be actively managed by experienced professionals, there can be no assurance that
the objectives will be achieved.
The value of the portfolio securities of each Portfolio and therefore the
Portfolio's net asset value per share (other than the Money Market Portfolio)
are expected to increase or decrease because of varying factors. There are
generally two types of risk associated with an investment in one or more of the
Portfolios; market (or interest rate) risk and financial (or credit) risk.
Market risk for equities is the risk associated with movement of the stock
market in general.
Market risk for fixed income securities is the risk that interest rates will
change, thereby affecting their value. Generally, the value of fixed income
securities declines as interest rates rise, and conversely, their value rises as
interest rates decline. The second type of risk, financial or credit risk, is
associated with the financial condition and profitability of an individual
equity or fixed income issuer. The financial risk in owning equities is related
to earnings stability and overall financial soundness of individual issuers and
of issuers collectively which are part of a particular industry. For fixed
income securities, credit risk relates to the financial ability of an issuer to
make periodic interest payments and ultimately repay the principal at maturity.
(See "Additional Information on Investment Objectives and Policies" for risk
aspects of the individual Portfolios).
INVESTMENT MANAGER
OpCap Advisors (the "Manager"), the investment manager of each of the
Portfolios, is investment manager and sub-adviser to several other registered
investment companies with assets under management of approximately $10.0
billion at March 31, 1997 and is a subsidiary of Oppenheimer Capital, a
registered investment adviser, which had assets under management, including
those of OpCap Advisors, of approximately $49.4 billion at March 31, 1997. See
"Management of the Fund" for a description of a pending transaction that if
consummated will involve a change in control of OpCap Advisors.
MANAGEMENT FEE
The Manager receives a monthly fee from each Portfolio at varying annual
percentage rates of average daily net assets, as follows: .80 percent on the
first $400 million, .75 percent on the next $400 million and .70 percent
thereafter of
3
<PAGE>
the average daily net assets for the Equity, Small Cap, Managed and Global
Equity Portfolios; .60 percent of average daily net assets for the U.S.
Government Income Portfolio; and .40 percent of the average daily net assets
for the Money Market Portfolio (see page 22).
PURCHASES AND REDEMPTION OF SHARES
Currently, shares of the Fund are sold at their net asset value per share,
without sales charge, for allocation to the Variable Accounts as the underlying
investment for the Contracts. Accordingly, the interest of the Contractowner
with respect to the Fund is subject to the terms of the Contract as described in
the accompanying Prospectus for the Variable Accounts, which should be reviewed
carefully by a person considering the purchase of a Contract. That Prospectus
describes the relationship between increases or decreases in the net asset value
of Fund shares and any distributions on such shares, and the benefits provided
under a Contract. The rights of the Variable Accounts as shareholders of the
Fund should be distinguished from the rights of a Contractowner which are
described in the Contract. As long as shares of the Fund are sold for
allocation to the Variable Accounts, the terms "shareholder" or "shareholders"
in this Prospectus shall refer to the Variable Accounts. Shares are redeemed at
their respective net asset values as next determined after receipt of proper
notice of redemption.
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus, the Additional Statement, and the accompanying
Prospectus for the Variable Accounts.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon appears in the
Additional Statement (Part B). This information should be read in conjunction
with the financial statements and related notes thereto included in the
Additional Statement. Total return information for the Portfolios of the Fund
provided in the Financial Highlights does not include charges and deductions
which are imposed under the Contracts and described in the Prospectus for the
Variable Accounts. Inclusion of these charges and deductions would reduce the
total return of the Portfolios of the Fund. Further information about the
performance of each Portfolio is available in the Fund's Annual Report. Annual
reports can be obtained without charge upon written requests to the insurance
companies issuing the Contracts.
EQUITY PORTFOLIO
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.
5
<PAGE>
SMALL CAP PORTFOLIO
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. . . . . . . . . . . . . . . . (0.89) (0.10) ---
----------- ----------- ----------
Net asset value, end of period . . . . . . . . . . . . . . . . . . $22.61 $19.91 $17.38
----------- ----------- ----------
----------- ----------- ----------
Total return (2) . . . . . . . . . . . . . . . . . . . . . . . . . 18.7% 15.2% (.6%)
----------- ----------- ----------
----------- ----------- ----------
Net assets, end of period. . . . . . . . . . . . . . . . . . . . . $34,256,671 $16,004,392 $9,210,443
----------- ----------- ----------
Ratio of net operating expenses to average 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.
6
<PAGE>
GLOBAL EQUITY PORTFOLIO
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995 (1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<C> <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.
7
<PAGE>
MANAGED PORTFOLIO
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 of its
fees. Additionally, for the year ended December 31, 1996, the Portfolio
benefited from an expense offset arrangement with its custodian bank. If
such waivers 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.
8
<PAGE>
U.S. GOVERNMENT INCOME PORTFOLIO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995 (1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<C> <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 a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such
waivers, assumptions and expense offsets had not been in effect, the ratios
of net operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 2.34% and
3.87%, respectively, for the year ended December 31, 1996, and 4.73% and
1.77%, annualized, respectively for the period January 3, 1995
(commencement of operations) to December 31, 1995.
9
<PAGE>
MONEY MARKET PORTFOLIO
FOR A SHARE OUTSTANDING THROUGHOUT THE 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 and unrealized 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 of its
fees. Additionally, for the year ended December 31, 1996, the Portfolio
benefited from an expense offset arrangement with its custodian bank. If
such waivers 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.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio of the Fund are
described below. Investment objectives of each Portfolio are fundamental
policies which cannot be changed for any Portfolio without a majority vote of
the shareholders of that Portfolio; investment policies are not fundamental and
may be adjusted by the Manager at any time, usually in response to its
perception of developments in the securities markets. The extent to which a
Portfolio will be able to achieve its distinct investment objectives depends
upon the Manager's ability to evaluate and develop the information it receives
into a successful investment program. Although each Portfolio will be managed
by experienced professionals, there can be no assurance that any Portfolio will
achieve its investment objectives. For Portfolios other than the Money Market
Portfolio, the values of the securities held in each Portfolio will fluctuate
and the net asset value per share at the time shares are redeemed may be more or
less than the net asset value per share at the time of purchase. Investors
should also refer to "Investment Techniques" for additional information
concerning the investment techniques employed for some or all of the Portfolios.
INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS
The Manager's equity investment policy is overseen by George Long,
President, Managing Director and Chief Investment Officer of Oppenheimer
Capital, the parent of the Manager. Mr. Long has been with Oppenheimer Capital
since 1982. Fixed income investment policy is overseen by Robert J. Bluestone,
Managing Director and Director of Fixed Income Management of Oppenheimer
Capital. Mr. Bluestone has been with the firm since 1986.
EQUITY PORTFOLIO
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) of
companies that are believed by the Manager to be undervalued in the marketplace
in relation to factors such as the companies' assets or earnings. It is the
Manager's intention to invest in securities of companies which in the Manager's
opinion possess one or more of the following characteristics: undervalued
assets, valuable consumer or commercial franchises, securities valuation below
peer companies, substantial and growing cash flow and/or a favorable price to
book value relationship. Investment policies aimed at achieving the Portfolio's
objective are set in a flexible framework of securities selection which
primarily includes equity securities, such as common stocks, preferred stocks,
convertible securities, rights and warrants in proportions which vary from time
to time. Under normal circumstances at least 65 percent of the Portfolio's
assets will be invested in equity securities. The Portfolio will invest
primarily in stocks listed on the New York Stock Exchange. In addition, it may
also purchase securities listed on other domestic securities exchanges,
securities traded in the domestic over-the-counter market and foreign securities
provided that they are listed on a domestic or foreign securities exchange or
represented by American depository receipts listed on a domestic securities
exchange or traded in domestic or foreign over-the-counter markets. Investments
of the Equity Portfolio are managed by Eileen Rominger, Managing Director of
Oppenheimer Capital. Ms. Rominger has been an analyst and portfolio manager at
Oppenheimer Capital since 1981.
SMALL CAP PORTFOLIO
The investment objective of the Small Cap Portfolio is to seek capital
appreciation through investments in a diversified portfolio consisting primarily
of equity securities of companies with market capitalizations of under $1
billion. Smaller-capitalization companies are often under-priced for the
following reasons: (i) institutional investors, which currently represent a
majority of the trading volume in the shares of publicly-traded companies, are
often less interested in such companies because in order to acquire an equity
position that is large enough to be meaningful to an institutional investor,
such an investor may be required to buy a large percentage of the company's
outstanding equity securities and (ii) such companies may not be regularly
researched by stock analysts, thereby resulting in greater discrepancies in
valuation. The Portfolio may also purchase securities in initial public
offerings, or shortly after such offerings have been completed, when the Manager
believes that such securities have greater-than-average market appreciation
potential. Under normal circumstances at least 65 percent of the Portfolio's
assets will be invested in equity securities. The majority of securities
purchased by the Portfolio will be
11
<PAGE>
traded on the New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market, and will also include options, warrants, bonds, notes
and debentures which are convertible into or exchangeable for, or which grant a
right to purchase or sell, such securities. In addition, the Portfolio may also
purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or are represented by American depository receipts
listed on a domestic securities exchange or traded in domestic or foreign over-
the-counter markets. The Small Cap Portfolio is managed by Timothy McCormack,
Timothy Curro and Gavin Albert, each of whom is a Vice President of Oppenheimer
Capital. Mr. McCormack became a portfolio manager of the Portfolio in May
1996. He joined Oppenheimer Capital in 1994. From March 1993 to July 1994 Mr.
McCormack was a security analyst at U.S. Trust Company and prior to that he was
a securities analyst with Gabelli and Company. He has a Masters of Business
Administration degree from the Wharton School. Timothy Curro and Gavin Albert
became portfolio managers of the Portfolio on January 1, 1997. Mr. Curro has
been a Vice President of Oppenheimer Capital since November 1996. Prior
thereto, he was a general partner of Value Holdings, L.P., an investment
partnership, from May 1995 to November 1996, a Vice President in the equity
research department at UBS Securities Inc. from June 1994 through May 1995 and
from January 1991 through February 1993 and was a partner with Omega Advisors,
Inc. from March 1993 to March 1994. He has a Masters of Business Administration
degree from the University of California, Berkeley. Mr. Albert, Vice President
of Oppenheimer Capital since December 1996, joined the firm in September 1994 as
a research analyst. Prior thereto he was a management consultant for EDS Energy
Management in 1994, attended the Vanderbilt University Business School from
September 1992 to May 1994 (with a Masters of Business Administration degree in
finance and management) and was a financial analyst in the Corporate Finance
department of Texaco, Inc. from 1990 to 1992.
GLOBAL EQUITY PORTFOLIO
The investment objective of the Global Equity Portfolio is to seek long
term capital appreciation through pursuit of a global investment strategy
primarily involving equity securities. The Portfolio may invest anywhere in the
world with no requirement that any specific percentage of its assets be
committed to any given country. Under normal circumstances, at least 65 percent
of the Portfolio's total assets will be invested in equity securities in at
least three different countries, one of which may be the United States.
Opportunities for capital appreciation may also be presented by debt securities.
The Portfolio may invest up to 35 percent of its total assets in debt
obligations with remaining maturities of one year or more of U.S. or foreign
corporate, governmental or bank issuers. It is the present intention of the
Portfolio, although not a fundamental policy, not to invest more than 5 percent
of its total assets in debt securities rated below investment-grade. Although
there is no minimum rating for this category of debt investments of the
Portfolio, the Portfolio does not intend to invest in bonds which are in
default. Domestic investments of this Portfolio are managed by Richard J.
Glasebrook II, Managing Director of Oppenheimer Capital. He joined Oppenheimer
Capital in 1991. The Portfolio's investments in foreign securities are managed
by Pierre Daviron, President and Chief Investment Officer of Oppenheimer Capital
International, a division of Oppenheimer Capital created in 1993. Previously,
he was Chairman and Chief Executive Officer at Indosuez Gartmore Asset
Management, a division of Banque Indosuez, Paris, France. Prior thereto he was
a Managing Director in Mergers and Acquisitions at J.P. Morgan.
U.S. GOVERNMENT INCOME PORTFOLIO
The investment objective of the U.S. Government Income Portfolio is to seek
a high level of current income together with protection of capital by investing
exclusively in debt obligations, including mortgage-backed securities, issued or
guaranteed by the United States government, its agencies or instrumentalities
("U.S. government securities"). Among the securities the Portfolio may purchase
are mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan National Mortgage Corporation
("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae").
The Portfolio normally intends to maintain at least 65 percent of its assets in
U.S. Government Securities. The average maturity of the Portfolio's investments
will vary based on market conditions. It is estimated that the average dollar
weighted maturity of the Portfolio will be between three and ten years. The
U.S. Government Income Portfolio is managed by Vikki Hanges, Vice President of
Oppenheimer Capital. She joined Oppenheimer Capital in 1982.
12
<PAGE>
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to seek maximum
current income consistent with stability of principal and liquidity. The
Portfolio may invest only in money market instruments and corporate obligations
denominated in U.S. dollars which have a maturity at the time of investment of
one year or less and repurchase and reverse repurchase agreements which extend
for no more than seven days. The Portfolio does not presently intend to enter
into reverse repurchase agreements. Money market instruments include U.S.
government securities, short-term bank obligations such as certificates of
deposit, bankers' acceptances and letters of credit and corporate commercial
paper. All investments will be of high quality as determined by one or more
nationally-recognized statistical rating organizations or, in the case of non-
rated securities, of comparable quality in accordance with standards and
procedures established by the Board of Trustees. It is expected that all or
almost all of the Portfolio's income will come from interest and that little or
no income will be the result of capital gains. (See "Additional Information on
Investment Objectives and Policies" for a more complete description of the
specific securities.)
MANAGED PORTFOLIO
The investment objective of the Managed Portfolio is to achieve growth of
capital over time through investment in a Portfolio consisting of common stocks,
bonds and cash equivalents, the percentages of which will vary based on the
manager's assessments of the relative outlook for such investments. In seeking
to achieve its investment objective, the types of equity securities in which the
Portfolio may invest are likely to be the same as those in which the Equity
Portfolio invests, although securities of the type in which the Small Cap
Portfolio invests may, to a lesser extent, be included. Debt securities are
expected to be predominantly investment grade intermediate to long term U.S.
Government and corporate debt, although the Portfolio will also invest in high
quality short term money market and cash equivalent securities and may invest
almost all of its assets in such securities when the manager deems it advisable
in order to preserve capital. In addition, the Portfolio may also purchase
foreign securities provided that they are listed on a domestic or foreign
securities exchange or are represented by American depository receipts listed on
a domestic securities exchange or traded in domestic or foreign over-the-counter
markets.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Manager's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a maximum percentage of the Portfolio's assets that may,
at any given time, be invested in any of the types of investments identified
above. Consequently, while the Portfolio will earn income to the extent it is
invested in bonds or cash equivalents, the Portfolio does not have any specific
income objective. Although there is neither a minimum nor maximum percentage of
the Portfolio's assets that may, at any given time, be invested in any of the
types of investments identified above, it is anticipated that most of the time
the majority of the Portfolio's assets will be invested in common stocks. The
investments of the Managed Portfolio are managed by Richard J. Glasebrook II,
Managing Director of Oppenheimer Capital.
13
<PAGE>
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES AND POLICIES
For the Equity, the Small Cap and the Global Equity Portfolios, at times
when the investment climate is viewed as favorable, common stocks will be
heavily emphasized. Under normal circumstances, at least 65 percent of each
Portfolio's assets will be invested in common stocks or securities convertible
into common stocks.
Under normal conditions, no less than 65 percent of the assets of the U.S.
Government Income Portfolio will be invested in the debt securities identified
under "U.S. Government Income Portfolio."
In the event that future economic or financial conditions adversely affect
equity securities, or stocks are considered overvalued, each of the Equity,
Small Cap and Global Equity Portfolios may invest a substantial portion of its
assets in debt securities, with an emphasis on money market instruments or cash
and cash equivalents. The U.S. Government Income Portfolio may increase the
proportion of its assets which are invested in money market instruments or cash
in the event that the Manager deems such investments advisable to preserve
capital.
Each Portfolio (other than the Money Market Portfolio) will in the normal
course have varying amounts of cash assets which have not yet been invested in
accordance with its objectives. This cash will be temporarily invested in high
quality short term money market securities and cash equivalents.
Regulations under Section 817(h) of the Internal Revenue Code ("IRC
817(h)") require each Portfolio to diversify its investments. To comply with
these regulations each Portfolio is required to diversify its investments so
that on the last day of each quarter of a calendar year no more than 55 percent
of the value of its total assets is represented by any one investment, no more
than 70 percent is represented by any two investments, no more than 80 percent
is represented by any three investments, and no more than 90 percent is
represented by any four investments. For this purpose, securities of a given
issuer generally are treated as one investment, but each U.S. Government agency
and instrumentality is treated as a separate and distinct issuer. As such, any
security issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the U.S. or an agency or instrumentality of the U.S. is treated as a security
issued by the U.S. Government or its agency or instrumentality, whichever is
applicable. These diversification rules limit the amount that any Portfolio,
and in particular the U.S. Government Income Portfolio can invest in any
single issuer, including direct obligations of the U.S. Treasury, to 55 percent
of the Portfolio's total assets at the end of any calendar quarter.
SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO INVESTS
(1) Securities issued or guaranteed by the U.S. Government.
(2) Obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government. Some of such obligations may be supported by the
full faith and credit of the U.S. Treasury while others may be
supported only by the credit of the particular Federal agency or
instrumentality issuing the obligation.
(3) Certificates of deposit, bankers' acceptances and letters of credit of
prime quality of U.S. banks and savings and loan associations and
their foreign branches (Eurodollars), foreign banks, and U.S. branches
of foreign banks (Yankees) having total assets in excess of $500
million.
(4) Certificates of deposit of prime quality fully insured as to principal
by the Federal Deposit Insurance Corp.
(5) Commercial paper of prime quality.
(6) Corporate notes, bonds and debentures that have a remaining maturity
of 365 calendar days or less if a class of short term debt comparable
with the security issued by the same issuer is of prime quality.
14
<PAGE>
(7) Repurchase agreements involving securities listed above, which are
described on page 19 of this Prospectus.
The Portfolio operates under Rule 2a-7 adopted under the Investment Company
Act of 1940 (the "Rule") which, if certain conditions are met, allows the
Portfolio to use the amortized cost method of valuing its portfolio securities
to determine its net asset value per share. As long as the Portfolio continues
to use the Rule, it must abide by certain conditions. Some of those conditions
relate to portfolio management: (i) it must maintain a dollar-weighted average
portfolio maturity not in excess of 90 days; (ii) it must limit its investments,
including repurchase agreements, to those instruments which are denominated in
U.S. dollars, and which are of "prime quality" as determined by any major rating
service or in the case of any instrument that is not rated, of comparable
quality as determined by the Board of Trustees in accordance with procedures
adopted pursuant to the Rule; and (iii) it may not purchase any instruments with
a remaining maturity of more than thirteen months. For the purposes of this
prospectus, prime quality shall mean the security (or the issuer for a
comparable security) is rated in one of the two highest rating categories for
short-term debt obligations by any two of Moody's Investors Service, Inc.
("Moodys"), Standard & Poor's Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff & Phelps") or Thomson's BankWatch, Inc.,
or by one of such rating agencies if only one rating agency has issued a rating
with respect to the security, or, if not rated, judged by the Manager pursuant
to criteria adopted by the Fund's Board of Trustees to be of comparable quality.
See the Appendix for a description of ratings. In addition, the Rule requires
that investments by the Money Market Portfolio which do not satisfy one of the
following requirements are limited in the aggregate to 5 percent of the
Portfolio's assets in regard to issues and 1 percent of assets (or $1 million if
greater) in regard to any one issuer of such issues: (i) issues rated in the
highest category (or the issuer is so rated for a comparable security) by at
least two of such rating agencies; or (ii) if rated by only one agency, rated in
the highest category; or (iii) if unrated determined by the Board of Trustees to
be of quality comparable to issues which qualify under (i) or (ii). For further
information, see "Determination of Net Asset Value" in the Additional Statement.
MANAGEMENT OF ASSETS
The Manager intends to manage each Portfolio's assets by buying and selling
securities to help attain its investment objective. This may result in
increases or decreases in a Portfolio's current income available for
distribution to its shareholders. While none of the Portfolios is managed with
the intent of generating short-term capital gains, each of the Portfolios may
dispose of investments (including money market instruments) regardless of the
holding period if, in the opinion of the Manager, an issuer's creditworthiness
or perceived changes in a company's growth prospects or asset value make selling
them advisable. Such an investment decision may result in capital gains or
losses and could result in a high portfolio turnover rate during a given period,
resulting in increased transaction costs related to equity securities.
Disposing of debt securities in these circumstances should not increase direct
transaction costs since debt securities are normally traded on a principal basis
without brokerage commissions. However, such transactions do involve a mark-up
or mark-down of the price.
During periods of unusual market conditions when the Manager believes that
investing for defensive purposes is appropriate, or in order to meet anticipated
redemption requests, part or all of the assets of one or more of the Portfolios
may be invested in cash or cash equivalents including obligations listed above.
The "Financial Highlights" table shows the Portfolios' portfolio turnover
rates. The portfolio turnover rates of the Portfolios cannot be accurately
predicted. Nevertheless, it is anticipated that the Equity, Managed and Global
Equity Portfolios will have an annual turnover rate (excluding turnover of
securities having a maturity of one year or less) of 100 percent or less and
that the U.S. Government Income Portfolio will have an annual turnover rate of
200 percent or less. It is anticipated that the Small Cap Portfolio will have
an annual turnover rate in excess of 100 percent. A 100 percent annual
turnover rate would occur, for example, if all the securities in a Portfolio's
investment portfolio were replaced once in a period of one year. A portfolio
turnover rate in excess of 100 percent can be expected to result in
correspondingly higher transaction costs. Because the Money Market Portfolio
will consist of securities with a maturity of one year or less, the turnover
rate as defined is not meaningful. Because of the short-term nature of its
investments, it is anticipated that the number of purchases and sales or
maturities of such securities will be substantial.
15
<PAGE>
RISK ASPECTS OF THE INDIVIDUAL PORTFOLIOS
MONEY MARKET PORTFOLIO. The Money Market Portfolio conforms to requirements
which permit it to maintain a constant net asset value of $1.00 per share
through use of the amortized cost method of valuation. The Money Market
Portfolio may invest in U.S. dollar denominated securities of foreign branches
of U.S. banks and U.S. branches of foreign banks. These investments involve
risks that are different from investments in securities of U.S. banks. While
there is no risk from exchange rate fluctuations, there may be risk of future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
Additionally, there may be less public information available about foreign banks
and their branches.
MANAGED AND U.S. GOVERNMENT INCOME PORTFOLIOS. An investment in the
Managed Portfolio will entail both market and financial risk, the extent of
which depends on the amount of the Portfolio's assets which are committed to
equity, longer term debt or money market securities at any particular time. The
U.S. Government Income Portfolio is expected to have greater interest rate risk
due to the Portfolio's primary investments in mortgage-backed securities. As
the Managed Portfolio may and the U.S. Government Income Fund will invest in
mortgage-backed securities, such securities, while similar to other fixed-income
securities, involve the additional risk of prepayment because mortgage
prepayments are passed through to the holder of the mortgage-backed security and
must be reinvested. Prepayments of mortgage principal reduce the stream of
future payments and generate cash which must be reinvested. When interest rates
fall, prepayments tend to rise. As such these Portfolios may have to reinvest
that portion of their respective assets invested in such securities more
frequently when interest rates are low than when interest rates are high.
SMALL CAP PORTFOLIO. The Small Cap Portfolio is expected to have greater
risk exposure and reward potential than a portfolio which invests primarily in
larger-capitalization companies. The trading volumes of securities of smaller-
capitalization companies are normally less than those of larger-capitalization
companies. This often translates into greater price swings, both upward and
downward. The waiting period for the achievement of an investor's objectives
might be longer since these securities are not closely monitored by research
analysts and, thus, it takes more time for investors to become aware of
fundamental changes or other factors which have motivated the Portfolio's
purchase. Smaller-capitalization companies often achieve higher growth rates
and experience higher failure rates than do larger-capitalization companies.
ADDITIONAL RISKS OF FOREIGN SECURITIES: The Global Equity, Equity, Small
Cap and Managed Portfolios may purchase foreign securities that are listed on a
domestic or foreign securities exchange, traded in domestic or foreign over-the
counter markets or represented by American Depository Receipts. There is no
limit to the amount of such foreign securities the Portfolios may acquire. It
will be the general practice of the Global Equity Portfolio to invest in foreign
equity securities. Certain factors and risks are presented by investment in
foreign securities which are in addition to the usual risks inherent in domestic
securities. Foreign companies are not necessarily subject to uniform
accounting, auditing and financial reporting standards or other regulatory
requirements comparable to those applicable to U.S. companies. Thus, there may
be less available information concerning non-U.S. issuers of securities held by
a Portfolio than is available concerning U.S. companies. In addition, with
respect to some foreign countries, there is the possibility of nationalization,
expropriation or confiscatory taxation; income earned in the foreign nation
being subject to taxation, including withholding taxes on interest and
dividends, or other taxes imposed with respect to investments in the foreign
nation; limitations on the removal of securities, property or other assets of a
fund; difficulties in pursuing legal remedies and obtaining judgments in foreign
courts, or political or social instability or diplomatic developments which
could affect U.S. investments in those countries. For a description of the
risks of possible losses through holding of securities in foreign custodian
banks and depositories, see "Investment of Assets" in the Additional Statement.
Securities of many non-U.S. companies may be less liquid and their prices
more volatile than securities of comparable U.S. companies. Non-U.S. stock
exchanges and brokers are generally subject to less governmental supervision and
regulation than in the U.S. and commissions on foreign stock exchanges are
generally higher than negotiated commissions on U.S. transactions. In addition,
there may in certain instances be delays in the settlement of non-U.S. stock
exchange transactions. Certain countries restrict foreign investments in their
16
<PAGE>
securities markets. These restrictions may limit or preclude investment in
certain countries, industries or market sectors, or may increase the cost of
investing in securities of particular companies. Purchasing the shares of
investment companies which invest in securities of a given country may be the
only or the most efficient way to invest in that country. This may require the
payment of a premium above the net asset value of such investment companies and
the return will be reduced by the operating expenses of those investment
companies.
A decline in the value of the U.S. dollar against the value of any
particular currency will cause an increase in the U.S. dollar value of a
Portfolio's holdings denominated in such currency. Conversely, a decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of the Portfolio's holdings of securities denominated in
such currency. Some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets which could adversely affect a Portfolio. The
Portfolios do not intend to speculate in foreign currency in connection with the
purchase or sale of securities on a foreign securities exchange but may enter
into foreign currency contracts to hedge their foreign currency exposure. While
those transactions may minimize the impact of currency appreciation and
depreciation, the Portfolios will bear a cost for entering into the transaction
and such transactions do not protect against a decline in the security's value
relative to other securities denominated in that currency.
It is expected that the Global Equity Portfolio will invest in American
Depository Receipts ("ADRs") or European Depository Receipts ("EDRs") which are
sponsored by persons other than the underlying issuers. ADRs are U.S. dollar-
denominated securities designed for use in the U.S. securities markets. They
represent and may be converted into the underlying foreign security. EDRs are
designed for use in the European securities market. Issuers of the stock of
such unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of such ADRs.
EMERGING MARKET COUNTRIES: Certain developing countries may have relatively
unstable governments, economies based on only a few industries that are
dependent upon international trade and reduced secondary market liquidity.
Foreign investment in certain emerging market countries is restricted or
controlled in varying degrees. In the past, securities in these countries have
experienced greater price movement, both positive and negative, than securities
of companies located in developed countries. Lower-rated high-yielding emerging
market securities may be considered to have speculative elements.
HIGH YIELD SECURITIES: It is the present intention of the Manager with
respect to each of the Equity, Small Cap, Global Equity and Managed Portfolios
to invest no more than 5 percent of its net assets in bonds rated below Baa3 by
Moody's or BBB- by S&P (commonly known as "junk bonds"). In the event that the
Manager intends in the future to invest more than 5 percent of the net assets of
any such Portfolio in junk bonds, appropriate disclosures will be made to
existing and prospective shareholders. For information about the possible risks
of investing in junk bonds see "Investment of Assets" in the Additional
Statement.
OPTIONS AND FUTURES: To the extent permitted by applicable state law, the
Global Equity, Small Cap and Equity Portfolios may engage in futures contracts
and options on futures contracts for bona fide hedging or other non-speculative
purposes. The Global Equity and Small Cap Portfolios may also engage in options
on stock indices. The Small Cap and Equity Portfolios may write covered call
options on individual securities. These Portfolios will not enter into any
leveraged futures transactions. Different uses of futures and options have
different risk and return characteristics. Generally, selling futures
contracts, purchasing put options and writing call options are strategies
designed to protect against falling security prices and can limit potential
gains if prices rise. Purchasing futures contracts, purchasing call options and
writing put options are strategies whose returns tend to rise and fall together
with securities prices and can cause losses if prices fall. If securities
prices remain unchanged over time, option writing strategies tend to be
profitable while option buying strategies tend to be unprofitable. For more
information about Options and Futures see "Investment Techniques" in this
Prospectus and "Investment of Assets" in the Additional Statement.
17
<PAGE>
INVESTMENT TECHNIQUES
The investment techniques or instruments described below are used for the
Portfolios' investment programs:
SHORT-TERM INVESTMENTS. Each Portfolio, other than the Money Market
Portfolio, typically invests a part of its assets in various types of U.S.
Government securities and high quality, short-term debt securities with
remaining maturities of one year or less ("money market instruments"). The
Money Market Portfolio invests all of its assets in these types of securities.
This type of short-term investment is made to provide liquidity for the
purchase of new investments and to effect redemptions of shares. The money
market instruments in which each Portfolio may invest include government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate securities and repurchase agreements.
REPURCHASE AGREEMENTS. Each Portfolio may acquire securities subject to
repurchase agreements. Under a typical repurchase agreement, a Portfolio would
acquire a debt security for a relatively short period (usually for one day and
not for more than one week) subject to an obligation of the seller to repurchase
and of the Portfolio to resell the debt security at an agreed-upon higher price,
thereby establishing a fixed investment return during the Portfolio's holding
period. A Portfolio will enter into repurchase agreements with member banks of
the Federal Reserve System having total assets in excess of $500 million and
with dealers registered with the SEC. Under each repurchase agreement the
selling institution will be required to maintain as collateral securities whose
market value is at least equal to the repurchase price. Repurchase agreements
could involve certain risks in the event of default or insolvency of the selling
institution, including costs of disposing of securities held as collateral and
any loss resulting from delays or restrictions upon the Portfolio's ability to
dispose of securities. Pursuant to guidelines established by the Portfolio's
Board of Trustees, the Manager considers the creditworthiness of those banks and
non-bank dealers with which a Portfolio enters into repurchase agreements and
monitors on an ongoing basis the value of securities held as collateral to
ensure that such value is maintained at the required level. A Portfolio will
not enter into a repurchase agreement with a dealer if the agreement has a
maturity beyond seven days. The staff of the SEC has taken the position that
repurchase agreements are loans collateralized by the underlying securities.
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities if such loans are secured continuously by collateral (cash, U.S.
Government or agency obligations or letters of credit) maintained on a daily
basis in an amount at least equal at all times to the market value of the
securities loaned and if the Portfolio does not incur any fees (other than the
transaction fees of its custodian bank) in connection with such loans. A
Portfolio may call the loan at any time on five days' notice and reacquire the
loaned securities. During the loan period, the Portfolio would continue to
receive the equivalent of the interest paid by the issuer on the securities
loaned and would also have the right to receive the interest on investment of
the cash collateral in short-term debt instruments. A portion of either or both
kinds of such interest may be paid to the borrower of such securities. It is
not intended that the value of the securities loaned, if any, would exceed 10
percent of the value of the total assets of the Equity, Small Cap, Managed and
Money Market Portfolios and 33 1/3 percent of the value of the total assets of
the U.S. Government Income and Global Equity Portfolios. Securities loans must
also meet applicable tests under the Internal Revenue Code. A Portfolio could
experience various costs or loss if a borrower defaults on its obligation to
return the borrowed securities.
OPTIONS AND FUTURES. To the extent permitted by applicable state law, the
Global Equity, Small Cap and Equity Portfolios may engage in options and futures
transactions. The Global Equity Portfolio may purchase and sell financial
futures contracts (including bond futures contracts and index futures
contracts), forward foreign currency contracts, foreign currency futures
contracts, options on futures contracts and stock indices and options on
currencies for bona fide hedging or other non-speculative purposes. The Small
Cap and Equity Portfolios may engage in futures contracts or options on futures
contracts for bona fide hedging or other non-speculative purposes and to write
calls on individual securities. The Small Cap, Equity and Managed Portfolios
may also enter into forward foreign currency contracts to purchase or sell
foreign currencies in connection with any transactions in foreign securities.
The Small Cap Portfolio may also engage in options on stock indices. When any
of such Portfolios anticipate a significant market or market sector advance, the
purchase of a futures contract affords a hedge against not participating in the
advance at a time when such Portfolio is not fully invested ("anticipatory
18
<PAGE>
hedge"). Such a purchase of a futures contract would serve as a temporary
substitute for the purchase of individual securities, which then may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. The Portfolios may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of such Portfolio's securities ("defensive
hedge"). To the extent that the Portfolios' securities change in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Portfolios of a market decline and by
so doing, provide an alternative to the liquidation of securities positions in
the Portfolios with attendant transaction costs. So long as the Commodities
Futures Trading Commission rules so require, none of the Portfolios will enter
into any financial futures or options contract unless such transactions are for
bona fide hedging purposes, or for other purposes only if the aggregate initial
margins and premiums required to establish such non-hedging positions would not
exceed 5 percent of the liquidation value of such Portfolio's assets. When
writing put options, the Fund, on behalf of the Portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at least
the exercise price of the option to secure its obligation to pay for the
underlying security. As a result, such Portfolio forgoes the opportunity of
trading the segregated assets or writing calls against those assets. There may
not be a complete correlation between the price of options and futures and the
market prices of the underlying securities. The Portfolio may lose the ability
to profit from an increase in the market value of the underlying security or may
lose its premium payment. If due to a lack of a market a Portfolio could not
effect a closing purchase transaction with respect to an OTC option, it would
have to hold the callable securities until the call lapsed or was exercised.
MORTGAGE-BACKED SECURITIES. The U.S. Government Income and Managed
Portfolios may invest in a type of mortgage-backed security known as modified
pass-through certificates. Each certificate evidences an interest in a specific
pool of mortgages that have been grouped together for sale and provides
investors with payments of interest and principal. The issuer of modified pass-
through certificates guarantees the payment of the principal and interest
whether or not the issuer has collected such amounts on the underlying mortgage.
The average life of these securities varies with the maturities of the
underlying mortgage instruments (generally up to 30 years) and with the extent
of prepayments on the mortgages themselves. Any such prepayments are passed
through to the certificate holder, reducing the stream of future payments.
Prepayments tend to rise in periods of falling interest rates, decreasing the
average life of the certificate and generating cash which must be invested in a
lower interest rate environment. This could also limit the appreciation
potential of the certificates when compared to similar debt obligations which
may not be paid down at will, and could cause losses on certificates purchased
at a premium or gains on certificates purchased at a discount. Ginnie Mae
certificates represent pools of mortgages insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veteran's
Administration. The guarantee of payments under these certificates is backed by
the full faith and credit of the United States. Fannie Mae is a government-
sponsored corporation owned entirely by private stockholders. The guarantee of
payments under these instruments is that of Fannie Mae only. They are not
backed by the full faith and credit of the United States but the U.S. Treasury
may extend credit to Fannie Mae through discretionary purchases of its
securities. The U.S. Government has no obligation to assume the liabilities of
Fannie Mae. Freddie Mac is a corporate instrumentality of the United States
government whose stock is owned by the Federal Home Loan Banks. Certificates
issued by Freddie Mac represent interest in mortgages from its portfolio.
Freddie Mac guarantees payments under its certificates but this guarantee is not
backed by the full faith and credit of the United States and Freddie Mac does
not have authority to borrow from the U.S. Treasury.
The coupon rate of these instruments is lower than the interest rate on the
underlying mortgages by the amount of fees paid to the issuing agencies, usually
approximately 1/2 of 1 percent. It is not anticipated that the Portfolios'
investments will have any particular maturity. Mortgage-backed securities, due
to the scheduled periodic repayment of principal, and the possibility of
accelerated repayment of underlying mortgage obligations, fluctuate in value in
a different manner than other, non-redeemable debt securities. The U.S.
Government Income and Managed Portfolios also may invest in "collateralized
mortgage obligations" ("CMO's") which are debt obligations secured by
mortgage-backed securities where the investor looks only to the issuer of the
security for payment of principal and interest.
PORTFOLIO TRANSACTIONS. The Manager's primary consideration when executing
security transactions with broker-dealers is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
19
<PAGE>
effective manner possible. The Manager may select, under certain conditions,
Oppenheimer & Co., Inc. ("OpCo"), an affiliate of the Manager, to execute each
Portfolio's transactions. Selection of broker-dealers to execute portfolio
transactions must be done in a manner consistent with the foregoing primary
consideration, the "Rules of Fair Practice" of the National Association of
Securities Dealers, Inc. and such other policies as the Board of Trustees may
determine. (For a further discussion of portfolio trading, see the Additional
Statement, "Investment Management and Other Services.")
INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain investment restrictions which,
together with its investment objective, are fundamental policies changeable only
by shareholder vote. (The restrictions in 1, 2 and 3 do not apply to U.S.
Government securities.) Under some of those restrictions, each Portfolio may
not:
1. Invest more than 5 percent of the value of its total assets in the
securities of any one issuer, or purchase more than 10 percent of the voting
securities, or more than 10 percent of any class of security, of any issuer (for
this purpose all outstanding debt securities of an issuer are considered as one
class and all preferred stock of an issuer are considered as one class).
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attaining its investment objective, a Portfolio may invest up to
25 percent of its total assets (valued at the time of investment) in any one
industry classification used by that Portfolio for investment purposes.
3. Invest more than 5 percent of the value of its total assets in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation.
4. Make loans, except through the purchase of U.S. Government securities
and corporate debt obligations, repurchase agreements or lending portfolio
securities as described above under "Loans of Portfolio Securities".
5. Borrow money in excess of 10 percent of the value of its total assets.
It may borrow only as a temporary measure for extraordinary or emergency
purposes and will make no additional investments while such borrowings exceed 5
percent of the total assets. Such prohibition against borrowing does not
prohibit escrow or other collateral or margin arrangements in connection with
the hedging instruments which a Portfolio is permitted to use by any of its
other fundamental policies.
6. Invest more than 15 percent of its assets in illiquid securities
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. (Money
Market Portfolio may not invest more than 10 percent of its assets in illiquid
securities.) Other investment restrictions are described in the Additional
Statement.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in the amount of total assets does not
require elimination of any security from a Portfolio.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees has overall responsibility for the management
of the Fund under the laws of Massachusetts governing the responsibilities of
trustees of a Massachusetts business trust. In general, such responsibilities
are comparable to those of directors of a Massachusetts business corporation.
The Board of Trustees of the Fund has undertaken to monitor the Fund for the
existence of any material irreconcilable conflict between the interests of
variable annuity Contractowners, variable life insurance Contractowners and
Qualified Plans due to the difference of tax treatment and other considerations,
and shall report any such conflict to the boards of the respective life
insurance companies which use the Fund as an investment vehicle for their
respective variable annuity and life insurance contracts and to the Qualified
Plans. The Boards of Directors of those life
20
<PAGE>
insurance companies and the Manager have agreed to be responsible for reporting
any potential or existing conflicts to the Trustees of the Fund. If a material
irreconcilable conflict exists that affects those life insurance companies,
those life insurance companies have agreed, at their own cost, to remedy such
conflict up to and including establishing a new registered management investment
company and segregating the assets underlying the variable annuity contracts and
the variable life insurance contracts. Qualified Plans which acquire more than
10 percent of the assets of the Fund will be required to report any potential or
existing conflicts to the Trustees of the Fund, and if a material irreconcilable
conflict exists, to remedy such conflict, up to and including redeeming Shares
of the Portfolios held by the Qualified Plans. The Additional Statement
contains information about the Trustees and Officers.
THE ADVISORY AGREEMENT. The Manager is responsible for management of the
Fund's business. Pursuant to the investment advisory agreement (the "Advisory
Agreement") with the Fund, and subject to the authority of the Board of
Trustees, the Manager supervises the investment operations of each Portfolio,
furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities and provides certain
administrative services for the Fund.
Under the Advisory Agreement the annual management fee is computed at an
annual rate of .80 percent on the first $400 million, .75 percent on the next
$400 million and .70 percent thereafter of the average daily net assets for the
Equity, Global Equity, Managed and Small Cap Portfolios, .60 percent of the
average daily net assets of the U.S. Government Income Portfolio, and .40
percent of the average daily net assets of the Money Market Portfolio. Through
at least December 31, 1997, the expenses of the Equity, Small Cap, Managed,
Money Market and U.S. Government Income Portfolios will be voluntarily limited
by the Manager so that annualized operating fund expenses (net of any expense
offsets) do not exceed 1.00 percent of their respective average daily net
assets.
Under the Advisory Agreement, each Portfolio is responsible for bearing
organizational expenses, taxes and governmental fees; brokerage commissions,
interest and other expenses incurred in acquiring and disposing of portfolio
securities; trustees fees, out of pocket travel expenses and other expenses for
trustees who are not interested persons; legal, accounting and audit expenses;
custodian, dividend disbursing and transfer agent fees; and other expenses not
expressly assumed by the Manager under the Advisory Agreement, which is
discussed below. The Manager will reimburse the Fund such that the total
operating expenses (net of any expense offsets) of each of the Portfolios of the
Fund do not exceed 1.25 percent of their respective average daily net assets.
The Manager is a subsidiary of Oppenheimer Capital, a registered investment
adviser with approximately $49.4 billion in assets under management on March 31,
1997. All investment management services performed under the Advisory Agreement
are performed by employees of Oppenheimer Capital. Oppenheimer Financial Corp.
("Opfin"), a holding company, is a 1.0% general partner of the Manager and holds
a one-third managing general partner interest in Oppenheimer Capital, and
Oppenheimer Capital, L.P., a Delaware limited partnership of which Opfin is the
sole 1.0% general partner and whose units are traded on the New York Stock
Exchange ("NYSE"), owns the remaining two-thirds interest. On February 13,
1997, PIMCO Advisors L.P., a registered investment adviser, with $110 billion in
assets under management through various subsidiaries, signed an Agreement and
Plan of Merger with Oppenheimer Group, Inc. ("OGI") and its subsidiary Opfin
pursuant to which PIMCO Advisors L.P. and its affiliate, Thomson Advisory Group,
Inc. ("TAG") will acquire the one-third managing general partner interest in
Oppenheimer Capital, the 1.0% general partner interest in OpCap Advisors and the
1.0% general partner interest in Oppenheimer Capital L.P. (the "Transaction")
and OGI will be merged with and into TAG. The Transaction is subject to certain
conditions being satisfied prior to closing, including consents from certain
lenders, approvals from regulatory authorities including a favorable tax ruling
from the Internal Revenue Service and consents of certain clients, which are
expected to take up to six months to obtain. If the Transaction is
consummated, it will involve a change of control of Oppenheimer Capital and its
subsidiary the Manager which will constitute an assignment and termination of
the Advisory Agreement between the Manager and the Fund. On February 28, 1997,
the Board of Directors of the Fund approved a new Advisory Agreement (on the
identical terms as the existing Advisory Agreement) to take effect upon
consummation of Transaction and recommended that the new Advisory Agreement be
submitted to the shareholders of the Fund for their approval. A proxy statement
will be sent to shareholders in the next few months. The Additional Statement
contains more information about the Advisory Agreement, including a more
complete description of the management fee and expense arrangements, exculpation
provisions and portfolio transactions for the Fund.
21
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share is calculated separately for each Portfolio.
The net asset value of each Portfolio is determined at the close of the regular
trading session ("Close") of the NYSE (currently 4:00 p.m. Eastern Time) each
day the NYSE is open and on each other day on which there is a sufficient degree
of trading in any Portfolio's securities affecting materially the value of such
securities (if the Fund receives a request to redeem its shares that day), by
dividing the value of the Portfolio's net assets by the number of shares
outstanding. The Fund's Board of Trustees has established procedures to value
the Portfolios' securities to determine net asset value; in general, except for
the Money Market Portfolio, those valuations are based on market value, with
special provisions for (i) securities (including restricted securities) not
having readily-available market quotations and (ii) short-term debt securities.
Securities listed on a national securities exchange or designated as national
market system securities are valued at the last sale price or, if there has
been no sale that day, at the last bid price. Debt and equity securities
actively traded in the over-the-counter market but not designated as national
market system securities are valued at the most recent bid price. Valuations
may be provided by a pricing service or from independent securities dealers.
Short-term investments with remaining maturities of less than 60 days are valued
at amortized cost so long as the Fund's Board of Trustees determines in good
faith that such method reflects fair value. Other securities are valued by
methods that the Fund's Board of Trustees believes accurately reflect fair
value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the Close of the NYSE. The values of such
securities used in computing the net asset value of a Portfolio's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the Close of the NYSE. If events materially affecting the
value of such securities and exchange rates occur between the time of such
determination and/or the Close of the NYSE, then these securities will be valued
at their fair value as determined in good faith under procedures established by
and under the supervision of the Fund's Board. Further details are in the
Additional Statement. The Money Market Portfolio uses the amortized cost method
of valuation as described in "Additional Information on Investment Objectives
and Policies - Securities in which the Money Market Portfolio Invests" in this
Prospectus and "Determination of Net Asset Value" in the Additional Statement
and generally will have a constant net asset value of $1.00 per share except
under extraordinary circumstances.
PURCHASE OF SHARES
Investments in the Fund may be made only by Variable Accounts and
Qualified Plans. Persons desiring to purchase Contracts funded by any Portfolio
or Portfolios of the Fund should read this Prospectus in conjunction with the
Prospectus of the Variable Accounts.
Shares of each Portfolio of the Fund are offered to the Variable Accounts
and Qualified Plans without sales charge at the respective net asset values of
the Portfolios next determined after receipt by the Fund of the purchase payment
in the manner set forth above under "Determination of Net Asset Value."
Certificates representing shares of the Fund will not be physically issued. OCC
Distributors acts without remuneration from the Fund as the exclusive
Distributor of the Fund's shares. The principal executive office of the
Distributor is located at Two World Financial Center, New York, New York l0080.
REDEMPTION OF SHARES
Shares of any Portfolio of the Fund can be redeemed by the Variable
Accounts and Qualified Plans at any time for cash, at the net asset value next
determined after receipt of the redemption request in proper form. The market
value of the securities in each of the Portfolios is subject to daily
fluctuation and the net asset value of each Portfolio's shares, other than
shares of the Money Market Portfolio, are expected to fluctuate accordingly.
The redemption value of the Fund's shares may be either more or less than the
original cost to the Variable Accounts. Payment for redeemed shares is
ordinarily made within seven days after receipt by the Fund's transfer agent of
22
<PAGE>
redemption instructions in proper form. The redemption privilege may be
suspended and payment postponed during any period when: (l) the NYSE is closed
other than for customary weekend or holiday closings or trading thereon is
restricted as determined by the SEC; (2) an emergency, as defined by the SEC
exists making trading of portfolio securities or valuation of net assets not
reasonably practicable; (3) the SEC has by order permitted such suspension.
STATE LAW RESTRICTIONS
The investments of the Variable Accounts are subject to the provisions of
the insurance laws of the States of domicile of the life insurance companies
offering the Contracts. The Fund and its Portfolios will voluntarily comply with
the statutory investment restrictions applicable to the investments of life
insurance company separate accounts, of the States of domicile of the life
insurance companies offering the Contracts, even though these state law
investment restrictions do not apply to the Fund and its Portfolios. For a
description of the state law restrictions applicable to the separate accounts of
the life insurance companies offering the Contracts, see the Prospectus for the
Variable Accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to distribute substantially all of its net
investment income and any net realized capital gains. Dividends from net
investment income and any distributions of realized capital gains will be paid
in additional shares of the Portfolio paying the dividend or making the
distribution and credited to the shareholder's account unless the shareholder
elects to receive such dividends or distributions in cash.
MONEY MARKET PORTFOLIO. Dividends from net income on the Money Market
Portfolio will be declared on each day the NYSE is open for business to
shareholders of record as of the close of business the preceding business day.
Net income, for dividend purposes, includes accrued interest and accretion of
any discount, less the amortization of market premium and the estimated expenses
of the Money Market Portfolio. The amount of dividend may fluctuate from day to
day and may be omitted on some days. Daily dividends accrued since the prior
dividend payment will be paid monthly. Any net realized long-term capital gains
will be declared and paid at least once per calendar year; net short-term gains
may be paid more frequently, with the distribution of dividends from net
investment income.
U.S. GOVERNMENT INCOME PORTFOLIO. Dividends from net investment income on
the U.S. Government Income Portfolio will be declared on each day the NYSE is
open for business to shareholders of record as of the close of business the
preceding business day. The Portfolio will pay monthly dividends from net
investment income. Distributions of realized net short-term capital gains, if
any, and realized long-term capital gains will be declared and paid at least
once per calendar year.
EQUITY, SMALL CAP, GLOBAL EQUITY AND MANAGED PORTFOLIOS. Dividends from
net investment income, if any, on the Small Cap, Equity, Global Equity and
Managed Portfolios will be declared and paid at least annually, and any net
realized capital gains will be declared and paid at least once per calendar
year.
TAXES. Because the Fund intends to distribute all of the net investment
income and capital gains of each Portfolio and otherwise qualify each Portfolio
as a regulated investment company under Subchapter M of the Internal Revenue
Code, it is not expected that any Portfolio of the Fund will be required to pay
any federal income tax on such income and capital gains. Since the Variable
Accounts and the Qualified Plans are the sole shareholders of the Fund, no
discussion is presented herein as to the federal income tax consequences at the
shareholder level. For information concerning the federal income tax
consequences to contractowners, see the Prospectus for the Variable Accounts.
23
<PAGE>
CALCULATION OF PERFORMANCE
From time to time the performance of one or more of the Portfolios may be
advertised. The performance data contained in these advertisements is based
upon historical earnings and is not indicative of future performance. The data
for each Portfolio reflects the results of that Portfolio of the Fund and
recurring charges and deductions borne by or imposed on the Portfolio. As the
performance for any Portfolio does not include charges and deductions under the
Contracts, comparisons with other portfolios used in connection with different
variable accounts may not be useful. Set forth below for each Portfolio is the
manner in which the data contained in such advertisements will be calculated as
well as performance information for the Portfolios as indicated below. This
performance information does not include charges and deductions which are
imposed under the Contracts and described in the Prospectus for the Variable
Accounts.
MONEY MARKET PORTFOLIO. The performance data for this Portfolio will
reflect the "yield" and "effective yield". The "yield" of the Portfolio refers
to the income generated by an investment in the Portfolio over the seven day
period stated in the advertisement. This income is "annualized", that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in the Portfolio is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
24
<PAGE>
YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1996 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.47 percent 4.57 percent
(1)Reflects waiver of advisory fees by the Manager. Had the waiver not been in
effect during the period, the yield and effective yield would have been 4.38
percent and 4.48 percent, respectively, for the Money Market Portfolio.
PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. The performance data for
these Portfolios will reflect the "yield" and "total return". The "yield" of
each of these Portfolios refers to the income generated by an investment in that
Portfolio over the 30 day period stated in the advertisement and is the result
of dividing that income by the value of the Portfolio. The value of each
Portfolio is the average daily number of shares outstanding multiplied by the
net asset value per share on the last day of the period. "Total Return" for
each of these Portfolios refers to the value a Shareholder would receive on the
date indicated if a $1,000 investment had been made the indicated number of
years ago. It reflects historical investment results less charges and
deductions of the Fund.
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1996 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.16 PERCENT
(1) Reflects waiver of 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 percent for the U.S. Government Income
Portfolio.
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, 1996 December 31, 1996 to December 31, 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
25
<PAGE>
each of the Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274
and $51,345,102, respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2) Reflects waivers of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager. Without
such waivers and reimbursements, the average annual total return during the
periods would have been lower.
In addition, reference in advertisements may be made to various indices,
including, without limitation, the S & P 500 Stock Index, the Russell 2000 and
the Lehman Brothers Corporate/Government Index, and various rankings by
independent evaluators such as Morningstar and Lipper Analytical Services, Inc.
in order to provide the reader a basis for comparison.
ADDITIONAL INFORMATION
ORGANIZATION OF THE FUND. The Fund was organized as a Massachusetts
business trust on May 12, 1994 and is registered with the SEC as an open-end
diversified management investment company. When issued, shares are fully paid
and have no preemptive or conversion rights. The shares of beneficial interest
of the Fund, $0.01 par value, are divided into seven separate series. The
shares of each series are freely-transferable and equal as to earnings, assets
and voting privileges with all other shares of that series. There are no
conversion, preemptive or other subscription rights. Upon liquidation of the
Fund or any Portfolio, shareholders of a Portfolio are entitled to share pro
rata in the net assets of that Portfolio available for distribution to
shareholders after all debts and expenses have been paid. The shares do not
have cumulative voting rights.
The Fund's Board of Trustees, whose responsibilities are comparable to
those of directors of a Massachusetts corporation, is empowered to issue
additional classes of shares, which classes may either be identical except as to
dividends or may have separate assets and liabilities; classes having separate
assets and liabilities are referred to as "series". The creation of additional
series and offering of their shares (the proceeds of which would be invested in
separate, independently managed portfolios with distinct investment objectives,
policies and restrictions) would not affect the interests of the current
shareholders in the existing Portfolios.
The assets received by the Fund on the sale of shares of each Portfolio and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are allocated to each Portfolio, and constitute the assets of such
Portfolio. The assets of each Portfolio are required to be segregated on the
Fund's books of account. The Fund's Board of Trustees has agreed to monitor the
portfolio transactions and management of each of the Portfolios and to consider
and resolve any conflict that may arise.
VOTING. For matters affecting only one Portfolio, only the shareholders of
that Portfolio are entitled to vote. For matters relating to all the Portfolios
but affecting the Portfolios differently, separate votes by Portfolio are
required. Approval of an Investment Management Agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
each Portfolio. To the extent required by law, the Variable Accounts will vote
the shares of the Fund, or any Portfolio of the Fund, held in the Variable
Accounts in accordance with instructions from Contractowners, as described under
the caption "Voting Rights" in the accompanying Prospectus for the Variable
Accounts. Shares for which no instructions are received as well as shares which
the Manager or its parent, Oppenheimer Capital, may own, will be voted in the
same proportion as shares for which instructions are received. The Fund does
not intend to hold annual meetings of shareholders. However, the Board of
Trustees will call special meetings of shareholders for action by shareholder
vote as may be requested in writing by holders of 10 percent or more of the
outstanding shares of a Portfolio or as may be required by applicable laws or
the Declaration of Trust pursuant to which the Fund has been organized.
Under Massachusetts law shareholders could, in certain circumstances, be
held personally liable as partners for Fund obligations. The Fund's Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each instrument
26
<PAGE>
entered into or executed by the Fund. The Declaration of Trust also provides
for indemnification out of the Fund's property for any shareholder held
personally liable for any Fund obligation. Thus, the risk of loss to a
shareholder from being held personally liable for obligations of the Fund is
limited to the unlikely circumstance in which the Fund itself would be unable
to meet its obligations.
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets of the Fund is
State Street Bank and Trust Company, P.O. Box 8505, Boston, MA 02266-8505,
which also acts as transfer agent and shareholder servicing agent for the Fund.
CONTRACTOWNERS INQUIRIES. Inquiries concerning the purchase and sale of
shares of the Fund, dividends, account statements and management and investment
policies of the Fund should be directed to the respective life insurance
companies which use the Fund as an investment vehicle for their respective
variable annuity and life insurance contracts.
27
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER AND CORPORATE BOND RATINGS
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay promissory obligations when due. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1 - Superior Ability for Repayment;
Prime 2 - Strong Ability for Repayment; Prime 3 - Acceptable Ability for
Repayment.
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. Issues assigned the
highest rating, "A", are regarded as having the greatest capacity for timely
payment. Issues in this category are delineated with the numbers "1", "2", and
"3" to indicate the relative degree of safety. The designation "A-1" indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. The "A+" designation is applied to those issues rated "A-1" which
possess overwhelming safety characteristics. Capacity for timely payment on
issues with the designation "A-2" is strong. However, the relative degree of
safety is not as high as for issues designated "A-1."
Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from "F-1+" which
represents exceptionally strong credit quality to "F-4" which represents weak
credit quality.
Duff's short-term ratings apply to all obligations with maturities of under
one year, including commercial paper, the uninsured portion of certificates of
deposit, unsecured bank loans, master notes, bankers acceptances, irrevocable
letters of credit and current maturities of long-term debt. Emphasis is placed
on liquidity. Ratings range for Duff 1+ for the highest quality to Duff 5 for
the lowest, issuers in default. Issues rated Duff 1+ are regarded as having the
highest certainty of timely payment. Issues rated Duff 1 are regarded as having
very high certainty of timely payment.
Thomson's BankWatch, Inc. assigns only one Issuer Rating to each company,
based upon a qualitative and quantitative analysis of the consolidated
financials of an issuer and its subsidiaries. The rating incorporates TBW's
opinion of the vulnerability of the company to adverse developments which may
impact the marketability of its securities, as well as the issuer's ability to
repay principal and interest. Ratings range from "TBW-1" for highest quality to
"TBW-3" for the lowest, companies with very serious problems.
BOND RATINGS
A bond rated "Aaa" by Moody's is judged to be the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is deemed secure.
While the various protective elements may change, such foreseeable changes are
unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. Margins of protection on "Aa" bonds may not be as large as on
"Aaa" securities or fluctuations of protective elements may be of greater
magnitude or there may be other elements present which make the long-term risks
appear somewhat larger than "Aaa" securities. Bonds which are rated "A" possess
many favorable investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment some time in the future. Bonds rated "Baa" are considered medium
grade obligations whose interest payments and principal security appear adequate
for the present but may lack certain protective elements or may be
characteristically unreliable over any great length of time. Moody's applies
numerical modifiers "1", "2" and "3" in each generic rating classification from
"Aa" through "B" in its corporate bond rating system. The modifier "1"
indicates that the security ranks in the higher end of its generic rating
category; the modifier "2" indicates a mid-
28
<PAGE>
range ranking; and the modifier "3" indicates that the issue ranks in the lower
end of its generic rating category. Bonds rated "Ba" are judged to have
speculative elements and bonds rated below "Ba" are speculative to a higher
degree.
Debt rated "AAA" by S&P has the highest rating assigned by it. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a
strong capacity to pay interest and repay principal and differs from "AAA"
issues only in small degree. Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated "BB" and below is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position within the category.
Debt rated "AAA", the highest rating by Fitch, is considered to be of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Debt rated "AA" is regarded as very high credit quality.
The obligor's ability to pay interest and repay principal is very strong. Debt
rated "A" is of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than debt with higher
ratings. Debt rated "BBB" is of satisfactory credit quality. The obligor's
ability to pay interest and repay principal is adequate, however a change in
economic conditions may adversely affect timely payment. Plus (+) and minus (-)
signs are used with a rating symbol (except "AAA") to indicate the relative
position within the category.
Debt rated "AAA", the highest rating by Duff is considered to be of the
highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt. Debt rated "AA" is regarded as high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. Debt rated "A" is
considered to have average but adequate protection factors. Bonds rated "BBB"
are considered to have below average protection factors but still sufficient for
prudent investment. Bonds rated "BB" and below are below investment grade and
possess fluctuating protection factors and risk. Plus (+) and minus (-) signs
are used with a rating symbol to indicate the relative position within the
category.
29
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCC ACCUMULATION TRUST
One World Financial Center
New York, NY 10281
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated May 1, 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.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Investment Management and Other Services . . . . . . . . . . . . . . . . . . 25
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 28
Dividends, Distribution and Taxes. . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Yield and Total Return Information . . . . . . . . . . . . . . . . 31
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
liquidity of an investment in such obligations. The Money Market Portfolio will
not invest more than 5% of its total assets in collateralized mortgage
obligations. Investments will only be made in collateralized mortgage
obligations which are of high quality, as determined by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus (10% limit on illiquid investments for
Money Market Portfolio)..
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the
amounts borrowed. The Portfolio has the right at any time to increase, up to
the full amount stated in the note agreement, or to decrease the amount
outstanding under the note. The issuer may prepay at any time and without
penalty any part of or the full amount of the note. The note may or may not be
backed by one or more bank letters of credit. Because these notes are direct
lending arrangements between the Portfolio and the issuer, it is not generally
contemplated that they will be traded; moreover, there is currently no secondary
market for them. The Portfolios have no limitations on the type of issuer from
3
<PAGE>
whom these notes will be purchased; however, in connection with such purchase
and on an ongoing basis, OpCap Advisors (the "Manager") will consider the
earning power, cash flow and other liquidity ratios of the issuer, and its
ability to pay principal and interest on demand, including a situation in which
all holders of such notes made demand simultaneously. The Portfolios will not
invest more than 5% of their total assets in variable rate notes. Variable rate
notes are subject to the Portfolios' investment restrictions on illiquid
securities unless such notes can be put back to the issuer on demand within
seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. The
Portfolio may, within the limits set forth in the Prospectus, purchase bank
obligations which are fully insured as to principal by the FDIC. Currently, to
remain fully insured as to principal, these investments must be limited to
$100,000 per bank; if the principal amount and accrued interest together exceed
$100,000, the excess principal amount and accrued interest will not be insured.
Insured bank obligations may have limited marketability. Unless the Board of
Trustees determines that a readily available market exists for such obligations,
a Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus for each Portfolio (10% limit for
illiquid investments for Money Market Portfolio) unless such obligations are
payable at principal amount plus accrued interest on demand or within seven days
after demand.
LOWER RATED BONDS. Each Portfolio except for the Money Market Portfolio
may invest up to 5% of its assets in bonds rated below Baa3 by Moody's Investors
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"). These
securities are commonly known as "junk bonds." Securities rated less than Baa
by Moody's or BBB- by S&P are classified as non-investment grade securities and
are considered speculative by those rating agencies. It is the Fund's policy
not to rely exclusively on ratings issued by credit rating agencies but to
supplement such ratings with the Manager's own independent and ongoing review of
credit quality. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized
that an economic downturn or increase in interest rates is likely to have a
negative effect on (i) the high yield bond market, (ii) the value of high yield
securities and (iii) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. The market for junk bonds may be less
liquid than the market for investment grade bonds. In periods of reduced market
liquidity, junk bond prices may become more volatile and may experience sudden
and substantial price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such conditions, a
Portfolio may find it difficult to value its junk bonds accurately. Under such
conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily on
the judgment of the Fund's Board of Trustees. Prices for junk bonds also may be
affected by legislative and regulatory developments. For example, new federal
rules require that savings and loans gradually reduce their holdings of high-
yield securities. Also, from time to time, Congress has considered legislation
to restrict or eliminate the corporate tax deduction for interest payments or to
regulate corporate restructurings such as takeovers, mergers or leveraged
buyouts. Such legislation, if enacted, may depress the prices of outstanding
junk bonds.
4
<PAGE>
DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll
files for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, Small Cap and
Equity Portfolios may engage in options and futures. Information about the
options and futures transactions these Portfolios may enter into is set forth
below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified debt
security, in most cases the obligation is fulfilled by closing out the position.
All futures transactions are effected through a clearing house associated with
the exchange on which the contracts are traded. The Global Equity Portfolio may
purchase and sell futures contracts that are currently traded, or may in the
future be traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase, the sum of
initial margin deposits on futures and premiums paid on futures options would
exceed 5%
5
<PAGE>
of the Portfolio's total assets. This limitation is not a fundamental policy.
INFORMATION ON PUTS AND CALLS. The Small Cap and Equity Portfolios may
write calls on individual securities. The Global Equity Portfolio is authorized
to write covered put and call options and purchase put and call options on the
securities in which it may invest. When a portfolio writes a call, it receives
a premium and agrees to sell the callable securities to a purchaser of a
corresponding call during the call period (usually not more than 9 months) at a
fixed exercise price (which may differ from the market price of the underlying
securities) regardless of market price changes during the call period. If the
call is exercised, the portfolio forgoes any possible profit from an increase in
market price over the exercise price. A portfolio may, in the case of listed
options, purchase calls in "closing purchase transactions" to terminate a call
obligation. A profit or loss will be realized, depending upon whether the net of
the amount of option transaction costs and the premium received on the call
written is more or less than the price of the call subsequently purchased. A
profit may be realized if the call lapses unexercised, because the portfolio
retains the underlying security and the premium received. 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.
6
<PAGE>
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium paid on a put written by a portfolio represents a profit, as long as
the price of the underlying investment remains above the exercise price.
However, a portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, the portfolio may incur a loss upon disposition, equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund, on behalf of a portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at least
the exercise price of the option. As a result, the portfolio forgoes the
opportunity of trading the segregated assets or writing calls against those
assets. As long as the portfolio's obligation as a put writer continues, the
portfolio may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring the portfolio to purchase the underlying
security at the exercise price. A portfolio has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. This obligation terminates upon the earlier of the
expiration of the put, or the consummation by the portfolio of a closing
purchase transaction by purchasing a put of the same series as that previously
sold. Once a portfolio has been assigned an exercise notice, it is thereafter
not allowed to effect a closing purchase transaction.
A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
portfolio. The portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its 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
7
<PAGE>
holdings against a decline in the market to the extent that the prices of the
future or securities underlying the put move in a similar pattern to the prices
of a portfolio's securities.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a portfolio may cause the portfolio to sell its
securities to cover the call, thus increasing its turnover rate in a manner
beyond the portfolio's control. The exercise of puts on securities or futures
will increase portfolio turnover. Although such exercise is within the
portfolio's control, holding a put might cause a portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Small Cap and Equity Portfolios may
purchase and write call and put options on futures contracts which are traded on
an exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right (in return for the premium paid) to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
term of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option is accompanied
by delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract at
the time of exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium 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.
8
<PAGE>
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge the
Portfolio's holdings against the risk of a decline in securities prices.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may be
required to make additional payments during the term of the contract to its
broker. Such payments would be required where during the term of a stock index
futures contract purchased by the Portfolio, the price of the underlying stock
index declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by the
Portfolio resulting in a net long position, an amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's custodian, for the benefit of the
Portfolio, to collateralize the position and thereby insure that the use of such
futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the price of the stock index future moves less than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective, but, if the price of the securities being hedged has moved in
an unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction this advantage will be partially offset by the future. If
the price of the futures moves more than the price of the stock the Portfolio
will experience a loss or a gain on the future which will not be completely
offset by movement in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the stock index futures,
the Portfolio may buy or sell stock index futures in a greater dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the prices of
9
<PAGE>
such securities has been greater than the historical volatility of the index.
Conversely, the Portfolio may buy or sell fewer stock index futures contracts if
the historical volatility of the price of the securities being hedged is less
than the historical volatility of the stock index. It is possible that where
the Portfolio has sold futures to hedge its portfolio against a decline in the
market, the market may advance and the Portfolio's securities may decline. If
this occurred, the Portfolio would lose money on the futures and also experience
a decline in the value of its securities. While this should occur, if at all,
for a very brief period or to a very small degree, the Manager believes that
over time the value of a diversified portfolio will tend to move in the same
direction as the market indices upon which the futures are based. It is also
possible that if the Portfolio hedges against the possibility of a decline in
the market adversely affecting stocks it holds and stock prices increase
instead, the Portfolio will lose part or all of the benefit of the increased
value of its stock which it had hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Portfolio may also have
to sell securities at a time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, the value of stock index futures contracts as a
hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used 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
10
<PAGE>
that the price of securities will, in fact, correlate with the price movements
in the futures contract and thus provide an offset to losses on a futures
contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets. Each Portfolio may use futures and
options thereon for bona fide hedging or for other purposes within the meaning
and intent of the applicable provisions of the CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. Another test is that less than 30% of its gross
income must be derived from gains realized on the sale of securities held for
less than three months. In connection with the 90% test, recent amendments to
the Internal Revenue Code specify that income from options, futures and other
gains derived from investments in securities is qualifying income under the 90%
test. Due to the 30% limitation, each Portfolio will limit the extent to which
it engages in the following activities, but except as otherwise set forth herein
or in the Prospectus, will not be precluded 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
11
<PAGE>
months; (iv) effecting closing transactions with respect to calls or puts
purchased less than three months previously; and (v) exercising puts or calls
held by a Portfolio for less than three months.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked to market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section 1256 contracts sold by a
portfolio during the year, and the resulting gain or loss will be deemed to
consist of 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A portfolio may elect to exclude certain transactions from the mark-to-
market rule although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed annually to meet
income distribution requirements, currently at 98%, to avoid payment of federal
excise tax.
It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.
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
12
<PAGE>
provided that they are listed on a domestic or foreign securities exchange or
represented by American depository receipts listed on a domestic securities
exchange or traded in a domestic or foreign over-the-counter market. There is
no limit on the amount of such foreign securities that the Portfolios might
acquire. These Portfolios will hold foreign currency in connection with the
purchase or sale of securities on a foreign securities exchange. To the extent
that foreign currency is so held, there may be a risk due to foreign currency
exchange rate fluctuations. Such foreign currency and foreign securities will
be held by the Fund's custodian bank, or by a foreign branch of a U.S. bank,
acting as subcustodian, on behalf of the Portfolio. The custodian bank will
hold such foreign securities pursuant to such arrangements as are permitted by
applicable foreign and domestic law and custom.
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
connection with the exchange of currency. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies are generally not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Most foreign stock markets have substantially less volume than the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable domestic companies. There is
generally less government regulation of foreign stock exchanges, brokers, and
listed companies than there is in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could adversely affect investment in securities of issuers
located in those countries. Individual foreign economies may differ favorable
or unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. If it should become necessary,
the Portfolios would normally encounter greater difficulties in commencing a
lawsuit against the issuer of a foreign security than it would against a United
States issuer.
INVESTMENTS IN EASTERN EUROPE. Investments in Eastern Europe are
speculative and involve a high degree of risk of loss. The emergence of Eastern
European capital markets is in part a function of the policies of the former
Gorbachev administration. With the recent change in power and restructuring of
the Soviet Union there is no assurance that such markets will continue to
constitute a viable investment opportunity for the Portfolios and there may be a
high degree of risk of expropriation without compensation. The governments of a
number of Eastern European countries previously expropriated large quantities of
private property. The claims of many property owners against those governments
were never finally settled. There is no assurance that such expropriation will
not occur again. If such expropriation were to recur, the Portfolios could lose
all or a substantial portion of their investments in such countries. Further,
no accounting standards comparable to those in the U.S. exist in Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into United States dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders of
the Portfolios. Presently the Global Equity Portfolio is the only Portfolio
which intends to invest in these types of securities.
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
13
<PAGE>
authorities may not be qualified to act as foreign custodians under the 1940 Act
and as a result, the Portfolios would not be able to invest in the countries in
the absence of exemptive relief from the Securities and Exchange Commission. In
addition, the risk of loss through government confiscation may be increased in
such countries.
FOREIGN CURRENCY TRANSACTIONS. The Global Equity, Equity, Small Cap and
Managed Portfolios do not intend to speculate in foreign currency. When a
Portfolio agrees to purchase or sell a security in a foreign market it will
generally be obligated to pay or entitled to receive a specified amount of
foreign currency and will then generally convert dollars to that currency in the
case of a purchase or that currency to dollars in the case of a sale. The
Global Equity, Equity, Small Cap and Managed Portfolios intend to conduct their
foreign currency exchange transactions on a spot basis (i.e., cash) at the spot
rate prevailing in the foreign currency exchange market or through entering into
forward foreign currency contracts ("forward contracts") to purchase or sell
foreign currencies. Such Portfolios may enter into forward contracts in order
to lock in the U.S. dollar amount they must pay or expect to receive for a
security they have agreed to buy or sell or with respect to their positions when
the Portfolios believe that a particular currency may change unfavorably
compared to the U.S. dollar. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating them to purchase, on
the same settlement date, the same amount of foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
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
14
<PAGE>
foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the spread between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Portfolio at one rate, while offering a lesser rate of exchange should
the Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
futures contracts that are not "regulated futures contracts," and from unlisted
options will be treated as ordinary income or loss under Internal Revenue Code
Section 988. Also, certain foreign exchange gains or losses derived with
respect to fixed-income securities are also subject to Section 988 treatment.
In general, therefore, Internal Revenue Code Section 988 gains or losses will
increase or decrease the amount of the Portfolio's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Portfolio's net capital gain.
Additionally, if Internal Revenue Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Portfolio would not
be able to make any ordinary income distributions.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees in accordance with such Rules. Such determination
will be made pursuant to such Rules following a consideration of a number of
factors, including, but not limited to, the reliability and financial stability
of the institution; the ability of the institution to perform custodial services
for the Fund; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of the
Portfolio's assets. However, no assurances can be given that the trustees'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes (including
currency blockage), confiscations or any other loss of assets that would affect
assets of the Portfolio will not occur, and shareholders bear the risk of losses
arising from those or other similar events.
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If 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
15
<PAGE>
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege.) At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security. Convertible securities may be purchased by the Portfolios at varying
price levels above their investment values and/or their conversion values in
keeping with the Portfolios' objectives.
FOREIGN AND DOMESTIC SECURITY SELECTION PROCESS. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets, security selection is
designed to reduce risk through a value oriented approach in which emphasis is
placed on identifying well-managed companies which, in the case of the Global
Equity Portfolio, represent exceptional values in terms of such factors as
assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may
purchase shares of investment companies or trusts which invest principally in
securities in which the Portfolio is authorized to invest. The return on a
Portfolio's investments in investment companies will be reduced by the operating
expenses, including investment advisory and administrative fees, of such
companies. A Portfolio's investment in an investment company may require the
payment of a premium above the net asset value of the investment company's
shares, and the market price of the investment company thereafter may decline
without any change in the value of the investment company's assets. The
Portfolio will invest in an investment company only if it is believed that the
potential benefits of such investment are sufficient to warrant the payment of
any such premium. Under the 1940 Act, the Portfolios cannot invest more than
10% of their assets, respectively, in investment companies or more than 5% of
their total assets, respectively, in the securities of any one investment
company, nor may they own more than 3% of the outstanding voting securities of
any such company, respectively. To the extent a Portfolio invests in securities
in bearer form it may be more difficult to recover securities in the event such
securities are lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. The U.S. Treasury has issued
proposed regulations which establish a mark-to-market regime that allows a
regulated investment company ("RIC") to avoid most, if not all, of the
difficulties posed by the PFIC rules. In any event, it is not anticipated that
any taxes on a Portfolio with respect to investments in PFIC's would be
significant.
16
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions applicable to the Portfolios
are described in the Prospectus. The following investment restrictions have
been adopted by the Fund as fundamental policies which cannot be changed without
the vote of a majority of the outstanding voting securities of that Portfolio.
Such a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at the meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio. For the purposes of the following restrictions and those contained
in the Prospectus: (i) all percentage limitations apply immediately after a
purchase or initial investment, unless specifically stated otherwise; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total assets does not require
elimination of any security from the Portfolio.
ADDITIONAL RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS. Each Portfolio of
the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in repurchase agreements; or (c) by
lending its portfolio securities, not in excess of 33% of the value of a
Portfolio's total assets, made in accordance with guidelines adopted by the
Fund's Board of Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
3. Pledge its assets or assign or otherwise encumber them in excess of
10% of its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in the
Prospectus.
4. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
5. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
6. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
7. Engage in the underwriting of securities except insofar as the Fund
may be deemed an
17
<PAGE>
underwriter under the Securities Act of 1933 in disposing of a portfolio
security.
8. Invest for the purposes of exercising control or management of another
company.
9. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY. The Money
Market Portfolio may not:
1. Invest in securities other than those listed in the description of its
investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year from the date of
purchase, except that where securities are held subject to repurchase agreements
having a term of one year or less from the date of delivery, the securities
subject to the agreement may have maturity dates in excess of one year from date
of delivery.
3. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities).
RESTRICTIONS APPLICABLE TO THE EQUITY, MANAGED, GLOBAL EQUITY AND SMALL CAP
PORTFOLIOS ONLY. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Managed, Global Equity and/or Small Cap
Portfolios; however, each Portfolio will attempt to dispose in an orderly
fashion of any securities received under these circumstances to the extent that
such securities, together with other unmarketable securities, exceed 15% of that
Portfolio's total assets.
TRUSTEES AND OFFICERS
The trustees and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. The address
of each is One World Financial Center, New York, New York 10281, except as
noted. As of March 31, 1997, the trustees and officers of the Fund as a group
owned none of its outstanding shares.
18
<PAGE>
JOSEPH M. LA MOTTA, CHAIRMAN OF THE BOARD OF TRUSTEES AND PRESIDENT*
Chairman of Oppenheimer Capital and 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
Ostervil, Massachusetts 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, and
OCC Cash Reserves, Inc.; Trustee of OCC Accumulation Trust and Oppenheimer
Quest for Value Funds, each of which is an open-end investment company .
THOMAS W. COURTNEY, C.F.A., TRUSTEE
P. O. Box 8186
Naples, Florida 33941
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund, a private venture capital fund; former
President of Federated Investment Counseling, Inc.; Trustee of Cash Assets
Trust, a money market fund; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc. Rochester Fund Municipals, Rochester Portfolio Series Limited Term New York
Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, OCC Cash
Reserves, Inc., and Trustee of Oppenheimer Quest for Value Funds, each of which
is an open-end investment company; former President of Boston Company
Institutional Investors, Inc.; former Director of The Financial Analysts
Federation; Trustee of Hawaiian Tax-Free Trust and Tax Free Trust of Arizona,
tax-exempt bond funds; and Director of several privately owned corporations.
LACY B. HERRMANN, TRUSTEE
380 Madison Avenue, Suite 2300
New York, New York 10017
President and Chairman of the Board of Aquila Management Corporation (since
1984), the sponsoring organization and Administrator and/or Advisor or Sub-
Advisor to the following open-end investment companies, and Chairman of the
Board of Trustees and President of each: Churchill Cash Reserves Trust (since
1985), Short Term Asset Reserves (from 1984 to 1993), Pacific Capital Cash
Assets Trust (since 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
19
<PAGE>
(1982 - 1985), each of which is a money market fund, Churchill Tax-Free Fund of
Kentucky (since 1986), Tax-Free Fund of Colorado (since 1986), Tax-Free Trust of
Oregon (since 1985), Tax-Free Trust of Arizona (since 1985), Tax-Free Fund For
Utah (since 1992) Narragansett Insured Tax-Free Income Fund (since 1992), and
Hawaiian Tax-Free Trust (since 1984), each of which is a tax-free municipal bond
fund, and of Aquila Rocky Mountain Equity Fund (since 1994) and Aquila Cascadia
Equity Fund (since 1996), each of which is a regional equity fund; Vice
President, Director, Secretary, and formerly Treasurer of Aquila Distributors,
Inc. (since 1981), distributor of each of the above funds; President and
Chairman of the Board of Trustees of Capital Cash Management Trust (CCMT), a
money market fund (since 1981) and an Officer and Trustee/Director of its
predecessors (since 1974); President and Director of STCM Management Company,
Inc., sponsor and Subadvisor to CCMT; Director, Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc. Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, OCC
Cash Reserves, Inc., Trustee of Oppenheimer Quest for Value Funds, each of
which is an open-end investment company; Trustee of Brown University since
1990; actively involved for many years in leadership roles with university,
school, and charitable organizations
GEORGE LOFT, TRUSTEE
51 Herrick Road
Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Capital Value Fund, Inc. Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Bond Fund for Growth, Oppenheimer Quest Global Value
Fund, Inc., Trustee of Oppenheimer Quest for Value Funds, all of which are
open-end investment companies.
GAVIN ALBERT, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President of Oppenheimer Capital since December 1996 and securities analyst
with Oppenheimer Capital since 1994; management consultant with EDS Energy
Management in 1994; attended Vanderbilt University Business School 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
20
<PAGE>
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. 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; 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
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, 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.,
21
<PAGE>
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.
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 of
Expenses OpCap Advisors
Paul Clinton $7050 0 0 $38,925
Thomas Courtney $6,600 0 0 $36,225
Lacy Herrmann $7,050 0 0 $41,187.50
Joseph La Motta 0 0 0 0
George Loft $7,050 0 0 $48,287.50
Mr. Clinton and Mr. Courtney earned directors fees with respect to 7
investment companies in the Advisor's Fund Complex, Mr. Herrmann earned
directors fees with respect to 8 investment companies in the Advisor's Fund
Complex (one of which is no longer part of the Advisor's Fund Complex) and the
fees earned by Mr. Loft were with respect to 9 investment
companies in the Advisor's Fund Complex (two of which are no longer part of the
Advisor's Fund Complex). In addition, during such periods, Mr. Clinton and Mr.
Courtney each served as director with respect to 5 investment companies in the
Advisor's Fund Complex for which they received no fees; Mr. Loft and Mr.
Herrmann each served as director with respect to 11 investment companies in the
Advisor's Fund Complex for which they received no fees (seven of which are no
longer part of the Advisor's Fund Complex). For the purpose of this
paragraph, a portfolio of an investment company organized in series form is
considered to be an investment company.
CONTROL PERSONS
As of April 7, 1997, shares of the Portfolios were held by Oppenheimer
Capital and the
22
<PAGE>
Variable Accounts of the following insurance companies, with the figures beneath
each Portfolio representing that company's holdings as a percentage of each
Portfolio's total outstanding shares.
23
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF APRIL 7, 1997(1)
PORTFOLIOS
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED
MARKET INCOME EQUITY CAP
The Mutual Life
Insurance Company 71.37%(2) 35.47% --- 15.09% 8.74% 26.02%
of New York (New
York, NY) & The
MONY Life
Insurance Company
of America
(New York, NY)
Provident Mutual
Life Insurance __ __ __ 66.64% 31.85% 21.16%
Company
(Philadelphia, PA)
& Providentmutual
Life and Annuity
Company of America
(Newark, DE)
Connecticut
General Life 26.00% --- 100.00% 18.27% 14.73% 26.47%
Insurance Company
& CIGNA Life
Insurance Company
(Hartford, CT)
Providian Life and __ 29.23% __ __ 23.79% 8.65%
Health Insurance
Company
(Frazer, PA)
American __ 28.64% __ __ less 2.23%
Enterprise Life than 5%
Insurance Company
(Indianapolis,
Ind.)
Oppenheimer No No No No
Capital 2.63% 6.66% invest- invest- invest- invest-
(New York, NY) ment ment ment ment
IL Annuity and
Insurance Company --- --- --- --- 1.86% 1.11%
(Indianapolis, IN)
Prudential Life
Insurance Company --- --- --- --- 19.03% 14.36%
of New Jersey
(Newark, NJ)
24
<PAGE>
Company does not offer shares of the Portfolio of the Fund
(1) This chart lists all Variable Account shareholders of record of the
Portfolios, who, as of April 7, 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.
(2) Two contractholders held units that would be equivalent to more than 5% of
the shares of the Money Market Portfolio. As of April 7, 1997, one
contractholder held the equivalent of 441,450 shares (10.3%) and another
contractholder held the equivalent of 383,569 shares (9%) of
the Money market Portfolio.
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 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 expenses of the Portfolios of the Fund to 1.25% (net of any
expense offsets) of their respective average daily net assets.
25
<PAGE>
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, $5,861 and $6,449,
respectively, to such Portfolios. For the period September 16, 1994
(commencement of operations) to December 31, 1994, the total management fee
accrued or paid on the Managed Portfolio was $92,564; the total management fee
waived was $46,152. For the fiscal year ended December 31, 1995, the total
advisory fees accrued or paid by the Equity, Managed, Small 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, $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
26
<PAGE>
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 Fund may execute brokerage transactions through
Oppenheimer & Co., Inc. ("OpCo"), an affiliated broker-dealer, acting as agent
in accordance with procedures established by the Board of Trustees but will not
purchase any securities from or sell any securities to OpCo acting as principal
for its own account.
The following table presents information as to the allocation of brokerage
commissions paid to OpCo by the Equity, Global Equity, Managed, and Small Cap
Portfolios for the period September 16, 1994 (commencement of operations) to
December 31, 1994, for the year ended December 31, 1995 and for the year ended
December 31, 1996.
27
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO TOTAL BROKERAGE BROKERAGE COMMISSIONS
COMMISSIONS PAID PAID TO OPCO
- -------------- ----------------------------------- -------------------------------------------------------------
$AMOUNTS %
-------------------------------- ----------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY $ 1,293 $ 6,942 $ 14,116 $ 912 $ 3,800 $ 5,743 70.5 55.0 40.7
MANAGED 10,865 65,136 107,123 7,415 26,544 61,183 68.2 41.0 57.1
SMALL CAP 10,897 35,395 52,990 4,191 12,805 23,565 38.5 36.0 44.5
GLOBAL EQUITY -- 11,614 41,242 -- 490 4,563 -- 4.0 11.1
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO TOTAL AMOUNT OF TRANSACTIONS
WHERE BROKERAGE COMMISSIONS PAID TO OPCO(1)
- ------------- -----------------------------------------------------------------------------------------------
$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 does not effect principal transactions with OpCo. When the Fund
effects principal transactions with other broker-dealers commissions are
imputed.
The Manager currently serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Manager to cause
purchase or sale transactions to be allocated among the Fund and others whose
assets it manages in such manner as it deems equitable. In making such
allocations among the Fund and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and the
opinions of the persons responsible for managing each portfolio of the Fund and
other client accounts. When orders to purchase or sell the same security on
identical terms are placed by more than one of the funds and/or other advisory
accounts managed by the Manager or its affiliates, the transactions are
generally executed as received, although a fund or advisory account that does
not direct trades to a specific broker ("free trades") usually will have its
order executed first. Purchases are combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a detrimental
effect on the price or volume of the security in a particular transaction as far
as the Fund is concerned. Orders placed by accounts that direct trades to a
specific broker will generally be executed after the free trades. All orders
placed on behalf of the Fund are considered free trades. However, having an
order placed first in the market does not necessarily guarantee the most
favorable price.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each of the Portfolios of the Fund is
determined each day the
28
<PAGE>
New York Stock Exchange (the "NYSE") is open, at the close of the regular
trading session of the NYSE that day, by dividing the value of the Fund's net
assets by the number of shares outstanding. The NYSE's most recent annual
announcement (which is subject to change) states that it will close on New
Year's Day, Presidents' Day, 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
29
<PAGE>
Securities and Exchange Commission under the 1940 Act (the "Rule") which permits
it to stabilize the price of its shares at $1.00 by valuing its securities
holdings on the basis of amortized cost. The amortized cost method of valuation
is accomplished by valuing a security at its cost adjusted by straight-line
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
30
<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,
Bond, Equity, Global Equity, Managed and Small Cap Portfolios are discussed in
the Prospectus. In computing interest income, these Portfolios will amortize
any discount or premium resulting from the purchase of debt securities except
for mortgage or other receivables-backed obligations subject to monthly payment
of principal and interest.
CAPITAL GAINS AND LOSSES. Gains or losses on the sales of securities by
the Fund will be long-term capital gains or losses if the securities have been
held by the Fund for more than twelve months, regardless of how long you have
held your shares. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses. 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 US
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
31
<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
32
<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%
1Reflects 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:
6
/ x \
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
33
<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.
34
<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 For the five For the
year period year period period from
ended ended inception to
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
35
<PAGE>
the Fund's outstanding shares may advise the Trustees in writing that they wish
to communicate with other shareholders for the purpose of requesting a meeting
to remove a Trustee. The Trustees will then either give the applicants access
to the Fund's shareholder list or mail the applicants' communication to all
other shareholders at the applicants' expense.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the Fund's obligations, and provides that the Fund shall indemnify
any shareholder who is held personally liable for the obligations of the Fund.
It also provides that the Fund shall assume, upon request, the defense of any
claim made against any shareholder for any act or obligation of the Fund and
shall satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a trust (such as the Fund) to be held personally liable as a
partner under certain circumstances, the risk of a shareholder incurring any
financial loss on account of shareholder liability is limited to the relatively
remote circumstance in which the Fund itself would be unable to meet the
obligations described above.
POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses would be
allocated fairly among two or more Portfolios by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
independent accountants. The Rule contains special provisions for cases in
which an advisory agreement is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
DISTRIBUTION AGREEMENT. Under the Distribution Agreement between each
Portfolio and the Distributor, the Distributor acts as the Portfolio's agent in
the continuous public offering of its shares. Expenses normally attributed to
sales, including advertising and the cost of printing and mailing prospectuses
other than those furnished to existing shareholders, are borne by the
Distributor.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP serves as independent
accountants of the Fund; their services include examining the annual financial
statements of each Portfolio as well as other related services. Price
Waterhouse LLP also serves as independent accountants for the Manager and its
affiliates.
36
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - 1.6%
$ 320,000 Federal Home Loan Bank, 5.19%, 1/9/97(cost-$319,631).................. $ 319,631
----------
SHORT-TERM CORPORATE NOTES - 12.9%
AUTOMOTIVE - 4.5%
$ 900,000 Ford Motor Credit Co., 5.40%, 1/28/97................................. $ 896,355
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.6%
470,000 Household Finance Corp., 5.34%, 1/7/97................................ 469,582
640,000 Prudential Funding Corp., 5.62%, 1/8/97............................... 639,301
----------
1,108,883
----------
TECHNOLOGY - 2.8%
IBM Credit Corp.,
155,000 5.22%, 1/7/97......................................................... 154,865
290,000 5.32%, 1/7/97......................................................... 289,743
118,000 5.46%, 1/7/97......................................................... 117,892
----------
562,500
----------
Total Short-Term Corporate Notes (cost-$2,567,738).................... $ 2,567,738
----------
<CAPTION>
SHARES
------
<C> <S> <C>
COMMON STOCKS - 87.5%
AEROSPACE/DEFENSE - 4.7%
5,000 Lockheed Martin Corp. ................................................ $457,500
7,494 McDonnell Douglas Corp................................................ 479,616
----------
937,116
----------
BANKING - 7.5%
6,556 Citicorp.............................................................. 675,268
3,033 Wells Fargo & Co. .................................................... 818,152
----------
1,493,420
----------
CHEMICALS - 3.6%
2,000 du Pont (E.I.) de Nemours & Co. ...................................... 188,750
7,698 Hercules, Inc. ....................................................... 332,939
4,910 Monsanto Co. ......................................................... 190,876
----------
712,565
----------
CONGLOMERATES - 2.8%
2,156 General Electric Co. ................................................. 213,174
7,500 Tenneco, Inc.*........................................................ 338,437
----------
551,611
----------
</TABLE>
A-1
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS - 2.1%
3,844 Avon Products, Inc.................................................... $ 219,589
6,843 Mattel, Inc. ......................................................... 189,893
----------
409,482
----------
DRUGS & MEDICAL PRODUCTS - 3.1%
14,042 Becton, Dickinson & Co. .............................................. 609,072
----------
ELECTRONICS - 2.7%
7,038 Arrow Electronics, Inc.*.............................................. 376,533
5,000 Electronic Arts, Inc.*................................................ 149,687
----------
526,220
----------
ENERGY - 1.4%
698 El Paso Natural Gas Co. .............................................. 35,224
4,996 Triton Energy Ltd.*................................................... 242,306
----------
277,530
----------
ENTERTAINMENT - .1%
1,700 TCI Satellite Entertainment, Inc.*.................................... 16,787
----------
FOOD SERVICES - 2.4%
10,500 McDonald's Corp. ..................................................... 475,125
----------
HEALTH & HOSPITALS - 4.8%
12,000 Columbia/HCA Healthcare Corp. ........................................ 489,000
5,000 OrNda HealthCorp.*.................................................... 146,250
14,000 Tenet Healthcare Corp.*............................................... 306,250
----------
941,500
----------
INSURANCE - 23.2%
15,700 ACE Ltd. ............................................................. 943,963
7,372 AFLAC, Inc. .......................................................... 315,153
3,262 American International Group, Inc. ................................... 353,112
17,000 Everest Reinsurance Holdings, Inc. ................................... 488,750
24,452 EXEL Ltd. ............................................................ 926,119
2,000 General Re Corp. ..................................................... 315,500
10,000 Mid Ocean Ltd. ....................................................... 525,000
4,579 Progressive Corp. (Ohio).............................................. 308,510
13,000 RenaissanceRe Holdings Ltd. .......................................... 429,000
----------
4,605,107
----------
LEISURE - 2.3%
14,000 Carnival Corp. ....................................................... 462,000
----------
</TABLE>
A-2
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MACHINERY/ENGINEERING - 3.4%
9,000 Caterpillar, Inc. .................................................... $ 677,250
----------
MANUFACTURING - 4.9%
3,000 Armstrong World Industries, Inc. ..................................... 208,500
17,560 LucasVarity Corp. PLC ADR*............................................ 667,280
8,000 Shaw Industries, Inc. ................................................ 94,000
----------
969,780
----------
METALS & MINING - .3%
2,145 Freeport McMoRan Copper & Gold (Class B).............................. 64,082
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.7%
19,912 Countrywide Credit Industries, Inc. .................................. 569,981
5,155 Federal Home Loan Mortgage Corp. ..................................... 567,694
----------
1,137,675
----------
PRINTING/PUBLISHING - 1.7%
11,000 Donnelley (R.R.) & Sons Co. .......................................... 345,125
----------
RETAIL - 2.6%
10,888 May Department Stores Co. ............................................ 509,014
----------
TELECOMMUNICATIONS - 2.9%
6,000 Sprint Corp. ......................................................... 239,250
25,000 Tele-Communications, Inc. (Class A)*.................................. 326,563
----------
565,813
----------
TRANSPORTATION - 5.3%
4,300 AMR Corp.*............................................................ 378,938
13,000 Canadian Pacific Ltd. ................................................ 344,500
8,000 CSX Corp. ............................................................ 338,000
----------
1,061,438
----------
Total Common Stocks (cost - $13,605,569).............................. $17,347,712
----------
Total Investments (cost - $16,492,938)...................... 102.0% $20,235,081
Other Liabilities in Excess of Other Assets................. (2.0) (392,083)
----- -----------
Total Net Assets............................................ 100.0% $19,842,998
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-3
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $16,492,938)...................................... $20,235,081
Cash............................................................................ 114,721
Dividends receivable............................................................ 17,264
Receivable from fund shares sold................................................ 10,703
Other assets.................................................................... 883
-----------
Total Assets.................................................................. 20,378,652
-----------
LIABILITIES
Payable for investments purchased............................................... 494,608
Investment advisory fee payable................................................. 18,017
Payable for fund shares redeemed................................................ 6,182
Other payables and accrued expenses............................................. 16,847
-----------
Total Liabilities............................................................. 535,654
-----------
Total Net Assets.............................................................. $19,842,998
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 6,598
Paid-in-capital in excess of par................................................ 15,232,928
Accumulated undistributed net investment income................................. 188,895
Accumulated undistributed net realized gain on investments...................... 672,434
Net unrealized appreciation on investments...................................... 3,742,143
-----------
Total Net Assets.............................................................. $19,842,998
===========
Fund shares outstanding......................................................... 659,810
-----------
Net asset value per share....................................................... $ 30.07
===========
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 185,285
Interest....................................................................... 137,420
----------
Total investment income..................................................... 322,705
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 109,507
Custodian fees (note 1G)....................................................... 16,342
Auditing, consulting and tax return preparation fees........................... 10,185
Transfer and dividend disbursing agent fees.................................... 9,252
Reports and notices to shareholders............................................ 3,011
Legal fees..................................................................... 2,206
Miscellaneous.................................................................. 4,221
----------
Total operating expenses.................................................... 154,724
Less: Investment advisory fees waived (note 2A)............................. (18,150)
Less: Expense offset arrangement (note 1G).................................. (2,764)
----------
Net operating expenses................................................. 133,810
----------
Net investment income.................................................. 188,895
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 672,433
Net change in unrealized appreciation (depreciation) on investments............ 2,218,378
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 2,890,811
----------
Net increase in net assets resulting from operations............................. $3,079,706
==========
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 188,895 $ 111,781
Net realized gain on investments........................... 672,433 233,302
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,218,378 1,628,793
----------- ----------
Net increase in net assets resulting from operations..... 3,079,706 1,973,876
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (111,781) (20,888)
Net realized gains......................................... (223,969) --
----------- ----------
Total dividends and distributions to shareholders........ (335,750) (20,888)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 9,184,397 3,630,236
Reinvestment of dividends and distributions................ 335,750 20,888
Cost of shares redeemed.................................... (1,457,087) (849,386)
----------- ----------
Net increase in net assets from fund share
transactions.......................................... 8,063,060 2,801,738
----------- ----------
Total increase in net assets.......................... 10,807,016 4,754,726
NET ASSETS
Beginning of year.......................................... 9,035,982 4,281,256
----------- ----------
End of year (including undistributed net investment income
of $188,895 and $111,781, respectively).................. $19,842,998 $ 9,035,982
=========== ==========
SHARES ISSUED AND REDEEMED
Issued..................................................... 339,540 161,702
Issued in reinvestment of dividends and distributions...... 13,029 1,074
Redeemed................................................... (53,448) (38,368)
----------- ----------
Net increase............................................. 299,121 124,408
=========== ==========
</TABLE>
See accompanying notes to financial statements.
A-6
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity Portfolio
(the "Portfolio"), the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions
A-7
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains, respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-capital or tax return of capital. At December 31, 1996,
the Portfolio did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $14,116, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $5,743.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $11,763,936 and $4,337,943,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,901,280, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $159,137 and net unrealized appreciation for Federal income tax purpose is
$3,742,143. Federal income tax cost basis of portfolio securities is $16,492,938
at December 31, 1996.
A-8
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-9
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 25.05 $ 18.12 $ 18.57
-------- ------- -------
Income from investment operations:
Net investment income................... 0.21 0.31 0.09
Net realized and unrealized gain (loss)
on investments........................ 5.52 6.71 (0.54)
-------- ------- -------
Total from investment operations...... 5.73 7.02 (0.45)
-------- ------- -------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.24) (0.09) --
Distributions to shareholders from net
realized capital gains................ (0.47) -- --
-------- ------- -------
Total dividends and distributions to
shareholders....................... (0.71) (0.09) --
-------- ------- -------
Net asset value, end of period.......... $ 30.07 $ 25.05 $ 18.12
======== ======= =======
Total return(2)......................... 23.4% 38.9% (2.4%)
======== ======= =======
Net assets, end of period............... $19,842,998 $ 9,035,982 $ 4,281,256
-------- ------- -------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.72% 0.72%(3)
-------- ------- -------
Ratio of net investment income to
average net assets(6)................. 1.29%(4) 1.74% 1.80%(3)
-------- ------- -------
Portfolio turnover rate................. 36% 31% 6%
-------- ------- -------
Average commission rate................. $ 0.0588 -- --
-------- ------- -------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $14,669,645.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.05% and
1.15%, respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Equity Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-11
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - .7%
$ 230,000 Federal Home Loan Mortgage Corp., 5.23%, 1/2/97 (cost - $229,967).... $ 229,967
-----------
SHORT-TERM CORPORATE NOTES - 16.8%
AUTOMOTIVE - 2.5%
Ford Motor Credit Co.,
$ 345,000 5.40%, 1/28/97....................................................... $ 343,603
500,000 5.62%, 1/2/97........................................................ 499,922
-----------
843,525
-----------
BANKING - 1.9%
670,000 Norwest Financial, Inc., 5.51%, 1/22/97.............................. 667,846
-----------
CONGLOMERATES - 3.7%
1,275,000 General Electric Capital Corp., 5.35%, 1/30/97....................... 1,269,505
-----------
MACHINERY/ENGINEERING - 3.5%
1,210,000 Deere (John) Capital Corp., 5.38%, 1/22/97........................... 1,206,203
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.5%
500,000 Beneficial Corp., 5.52%, 1/28/97..................................... 497,930
-----------
TECHNOLOGY - 3.7%
IBM Credit Corp.,
370,000 5.31%, 1/6/97........................................................ 369,727
900,000 5.32%, 1/6/97........................................................ 899,335
-----------
1,269,062
-----------
Total Short-Term Corporate Notes (cost - $5,754,071)................. $ 5,754,071
-----------
CORPORATE NOTE - .1%
AUTOMOTIVE - .1%
$ 2,148 Collins Industries, Inc., 8.75%, 1/11/00 (cost - $2,148)............. $ 1,995
-----------
CONVERTIBLE CORPORATE BOND - .1%
REAL ESTATE - .1%
$ 49,995 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $45,364)..................................................... $ 60,481
-----------
<CAPTION>
SHARES
------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .2%
TRANSPORTATION - .2%
825 Interpool, Inc., 5.75%, Conv. Pfd. (cost - $62,700).................. $ 84,150
-----------
COMMON STOCKS - 82.2%
ADVERTISING - 2.4%
71,900 Katz Media Group, Inc.*.............................................. $ 808,875
-----------
AEROSPACE/DEFENSE - 1.2%
19,000 Tracor, Inc.*........................................................ 403,750
-----------
</TABLE>
A-12
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
AUTOMOTIVE - 2.5%
14,400 Borg-Warner Automotive, Inc.......................................... $ 554,400
45,000 Jason, Inc.*......................................................... 292,500
-----------
846,900
-----------
BANKING - .5%
6,800 First Financial Caribbean Corp. ..................................... 188,700
-----------
BUILDING & CONSTRUCTION - 1.0%
16,400 Dal-Tile International, Inc.*........................................ 334,150
-----------
CHEMICALS - 1.1%
10,500 McWhorter Technologies, Inc.*........................................ 240,187
9,800 Sybron Chemicals, Inc.*.............................................. 156,800
-----------
396,987
-----------
COMPUTER SERVICES - 3.8%
63,867 BancTec, Inc.*....................................................... 1,317,257
-----------
DRUGS & MEDICAL PRODUCTS - 5.9%
5,000 Dentsply International, Inc. ........................................ 237,500
62,800 SpaceLabs Medical, Inc.*............................................. 1,287,400
19,700 Vital Signs, Inc. ................................................... 512,200
-----------
2,037,100
-----------
ELECTRICAL EQUIPMENT - 10.6%
9,200 Arrow Electronics, Inc.*............................................. 492,200
5,300 AVX Corp. ........................................................... 113,950
56,800 EG & G, Inc. ........................................................ 1,143,100
43,000 Exar Corp.*.......................................................... 666,500
19,100 Marshall Industries*................................................. 584,937
27,720 Oak Industries, Inc.*................................................ 637,560
-----------
3,638,247
-----------
ENERGY - 5.1%
17,948 Aquila Gas Pipeline Corp. ........................................... 284,924
3,300 Belden & Blake Corp.*................................................ 84,150
10,000 Nuevo Energy Co.*.................................................... 520,000
21,300 Petroleum Heat & Power Company, Inc. (Class A)....................... 135,788
9,640 Seagull Energy Corp.*................................................ 212,080
12,500 St. Mary Land & Exploration Co. ..................................... 310,938
4,000 Triton Energy Ltd.*.................................................. 194,000
-----------
1,741,880
-----------
</TABLE>
A-13
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH & HOSPITALS - 5.0%
65,200 Magellan Health Services, Inc*....................................... $ 1,458,850
14,800 Summit Care Corp.*................................................... 242,350
-----------
1,701,200
-----------
INSURANCE - 14.4%
9,400 ACE Ltd. ............................................................ 565,175
38,100 Capsure Holdings Corp.*.............................................. 433,388
20,600 Delphi Financial Group, Inc. ........................................ 607,700
10,900 Everest Reinsurance Holdings, Inc. .................................. 313,375
50,300 E.W. Blanch Holdings, Inc. .......................................... 1,012,287
17,200 Gryphon Holdings, Inc. .............................................. 242,950
17,000 Horace Mann Educators Corp. ......................................... 686,375
7,100 Protective Life Corp. ............................................... 283,112
18,200 United Wisconsin Services, Inc. ..................................... 477,750
6,000 W.R. Berkley Corp. .................................................. 304,500
-----------
4,926,612
-----------
MACHINERY/ENGINEERING - 2.1%
30,200 United Dominion Industries, Ltd. .................................... 709,700
-----------
MANUFACTURING - 8.0%
13,600 Alltrista Corp.*..................................................... 350,200
139,200 Baldwin Technology Co. (Class A)*.................................... 348,000
6,500 Briggs & Stratton Corp. ............................................. 286,000
4,500 Carlisle Companies, Inc. ............................................ 272,250
15,750 Crane Co. ........................................................... 456,750
59,500 Easco, Inc. ......................................................... 453,687
31,200 Exabyte Corp.*....................................................... 417,300
5,200 Greenfield Industries, Inc. ......................................... 159,250
-----------
2,743,437
-----------
MEDIA/BROADCASTING - .6%
7,500 American Radio Systems Corp.*........................................ 204,375
-----------
PAPER PRODUCTS - 2.4%
143,800 Repap Enterprises, Inc.*............................................. 399,944
21,000 Shorewood Packaging Corp.*........................................... 409,500
-----------
809,444
-----------
PRINTING & PUBLISHING - 2.9%
15,300 International Imaging Materials, Inc.*............................... 348,075
63,400 Nu-Kote Holdings, Inc. (Class A)*.................................... 649,850
-----------
997,925
-----------
</TABLE>
A-14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE - 3.6%
15,291 Cousins Properties, Inc. ............................................ $ 430,059
66 Security Capital Group, Inc. (A)..................................... 82,156
20,200 Security Capital Industrial Trust, Inc. ............................. 431,775
12,752 Security Capital Pacific Trust....................................... 291,702
-----------
1,235,692
-----------
RETAIL - .4%
8,500 Maxim Group, Inc.*................................................... 148,750
-----------
TECHNOLOGY - 4.1%
11,000 Channell Commercial Corp.*........................................... 136,125
8,000 Unitrode Corp.*...................................................... 235,000
51,400 Wang Laboratories, Inc.*............................................. 1,040,850
-----------
1,411,975
-----------
TELECOMMUNICATIONS - .6%
10,100 ECI Telecom Ltd. .................................................... 214,625
-----------
TEXTILES/APPAREL - 1.7%
19,000 Westpoint Stevens, Inc. (Class A)*................................... 567,625
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
6,000 Sylvan Foods Holdings, Inc.*......................................... 78,000
-----------
TRANSPORTATION - 1.6%
12,200 Interpool, Inc....................................................... 285,175
13,100 MTL, Inc.*........................................................... 265,275
-----------
550,450
-----------
OTHER - .5%
6,150 McGrath RentCorp..................................................... 158,363
-----------
Total Common Stocks (cost - $24,953,214)............................. $28,172,019
-----------
Total Investments (cost - $31,047,464)....................... 100.1% $34,302,683
Other Liabilities in Excess of other assets.................. (0.1) (46,012)
----- -----------
Total Net Assets............................................. 100.0% $34,256,671
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
(A) Restricted securities (the Portfolio will not bear any costs, including
those involved in registration under the securities act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14....... 9/16/94 $49,995 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock.......... 9/16/94 -- 66 949 1,245
</TABLE>
See accompanying notes to financial statements.
A-15
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $31,047,464)...................................... $34,302,683
Cash............................................................................ 8,758
Dividends receivable............................................................ 8,504
Interest receivable............................................................. 6,304
Receivable from fund shares sold................................................ 1,397
Other assets.................................................................... 1,207
-----------
Total Assets.................................................................. 34,328,853
-----------
LIABILITIES
Payable for fund shares redeemed................................................ 27,274
Investment advisory fee payable................................................. 23,648
Other payables and accrued expenses............................................. 21,260
-----------
Total Liabilities............................................................. 72,182
-----------
Total Net Assets.............................................................. $34,256,671
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 15,153
Paid-in-capital in excess of par................................................ 29,167,853
Accumulated undistributed net investment income................................. 226,925
Accumulated undistributed net realized gain on investments...................... 1,591,521
Net unrealized appreciation on investments...................................... 3,255,219
-----------
Total Net Assets.............................................................. $34,256,671
===========
Fund shares outstanding......................................................... 1,515,250
-----------
Net asset value per share....................................................... $ 22.61
===========
</TABLE>
See accompanying notes to financial statements.
A-16
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 227,354
Interest....................................................................... 199,837
----------
Total investment income..................................................... 427,191
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 165,735
Custodian fees (note 1G)....................................................... 22,883
Auditing, consulting and tax return preparation fees........................... 10,309
Transfer and dividend disbursing agent fees.................................... 9,357
Trustees' fees and expenses.................................................... 5,702
Reports and notices to shareholders............................................ 3,914
Legal fees..................................................................... 3,048
Miscellaneous.................................................................. 1,770
----------
Total operating expenses.................................................... 222,718
Less: Investment advisory fees waived (note 2A)............................. (17,823)
Less: Expense offset arrangement (note 1G).................................. (4,629)
----------
Net operating expenses................................................. 200,266
----------
Net investment income.................................................. 226,925
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Net realized gain on investments............................................... 1,679,412
Net change in unrealized appreciation (depreciation) on investments............ 2,142,715
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 3,822,127
----------
Net increase in net assets resulting from operations............................. $4,049,052
==========
</TABLE>
See accompanying notes to financial statements.
A-17
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 226,925 $ 211,870
Net realized gain on investments........................... 1,679,412 456,809
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,142,715 1,189,804
----------- -----------
Net increase in net assets resulting from
operations.......................................... 4,049,052 1,858,483
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (211,870) (29,623)
Net realized gains......................................... (544,700) (26,352)
----------- -----------
Total dividends and distributions to shareholders..... (756,570) (55,975)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 17,604,938 7,801,061
Reinvestment of dividends and distributions................ 756,533 55,975
Cost of shares redeemed.................................... (3,401,674) (2,865,595)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 14,959,797 4,991,441
----------- -----------
Total increase in net assets..................... 18,252,279 6,793,949
NET ASSETS
Beginning of year.......................................... 16,004,392 9,210,443
----------- -----------
End of year (including undistributed net investment income
of $226,925 and $211,870, respectively).................. $34,256,671 $16,004,392
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 837,586 427,444
Issued in reinvestment of dividends and distributions...... 38,520 3,289
Redeemed................................................... (164,530) (156,903)
----------- -----------
Net increase.......................................... 711,576 273,830
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-18
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global Equity
Portfolio, the Managed Portfolio, the Bond Portfolio, the U. S. Government
Income Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"),
a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting
A-19
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
principles. These "book-tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their Federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains, respectively. To the extent distributions
exceed current and accumulated earnings and profits for Federal income tax
purposes, they are reported as distributions of paid-in-capital or tax return of
capital. At December 31, 1996, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $52,990, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $23,565.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $20,565,700 and $9,055,696,
respectively.
A-20
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,909,842, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $663,423, and net unrealized appreciation for Federal income tax purposes is
$3,246,419. Federal income tax cost basis of portfolio securities is $31,056,264
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-21
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 19.91 $ 17.38 $ 17.49
----------- ----------- ----------
Income from investment operations:
Net investment income................... 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments........................ 3.45 2.37 (0.17)
----------- ----------- ----------
Total from investment operations...... 3.59 2.63 (0.11)
----------- ----------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.25) (0.05) --
Distributions to shareholders from net
realized capital gains................ (0.64) (0.05) --
----------- ----------- ----------
Total dividends and distributions to
shareholders....................... (0.89) (0.10) --
----------- ----------- ----------
Net asset value, end of period.......... $ 22.61 $ 19.91 $ 17.38
=========== =========== ==========
Total return(2)......................... 18.7% 15.2% (0.6%)
=========== =========== ==========
Net assets, end of period............... $34,256,671 $16,004,392 $ 9,210,443
----------- ----------- ----------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.74% 0.74%(3)
----------- ----------- ----------
Ratio of net investment income to
average net assets(6)................. 1.03%(4) 1.75% 1.22%(3)
----------- ----------- ----------
Portfolio turnover rate................. 50% 69% 32%
----------- ----------- ----------
Average commission rate................. $ 0.0493 -- --
----------- ----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $22,131,648.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.01% and
0.92%, respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Small Cap Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Small Cap Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-23
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 13.6%
AUTOMOTIVE - 3.8%
$6,870,000 Ford Motor Credit Co., 5.42%, 1/6/97................................ $ 6,864,828
------------
CONGLOMERATES - 4.3%
7,680,000 General Electric Capital Corp., 5.39%, 1/7/97....................... 7,673,101
------------
INSURANCE - .3%
555,000 Marsh & McLennan Co., Inc., 6.55%, 1/2/97........................... 554,899
------------
MISCELLANEOUS FINANCIAL SERVICES - 5.2%
Household Finance Corp.,
130,000 5.34%, 1/7/97....................................................... 129,884
3,300,000 5.45%, 1/7/97....................................................... 3,297,003
6,000,000 Merrill Lynch & Co., Inc., 5.70%, 1/6/97............................ 5,995,250
------------
9,422,137
------------
Total Short-Term Corporate Notes (cost - $24,514,965)............... $ 24,514,965
------------
U.S. TREASURY NOTES AND BONDS - .9%
$ 700,000 6.25%, 8/15/23...................................................... $ 656,250
630,000 7.875%, 4/15/98..................................................... 646,437
297,500 7.875%, 8/15/01..................................................... 317,117
------------
Total U.S. Treasury Notes and Bonds (cost - $1,514,907)............. $ 1,619,804
------------
CONVERTIBLE CORPORATE BOND - .4%
REAL ESTATE - .4%
$ 614,371 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $557,508)................................................... $ 743,231
------------
<CAPTION>
SHARES
- ----------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .0%
RETAIL - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............ $ 45,533
------------
COMMON STOCKS - 85.4%
AEROSPACE/DEFENSE - 7.5%
43,200 Lockheed Martin Corp. .............................................. $ 3,952,800
150,000 McDonnell Douglas Corp. ............................................ 9,600,000
------------
13,552,800
------------
BANKING - 12.3%
80,000 Citicorp............................................................ 8,240,000
10,000 First Empire State Corp. ........................................... 2,880,000
41,200 Wells Fargo & Co. .................................................. 11,113,700
------------
22,233,700
------------
</TABLE>
A-24
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BUILDING & CONSTRUCTION - .3%
31,680 Newport News Shipbuilding Inc.*..................................... $ 475,200
------------
CHEMICALS - 8.4%
83,000 du Pont (E.I.) de Nemours & Co. .................................... 7,833,125
100,000 Hercules, Inc. ..................................................... 4,325,000
80,000 Monsanto Co. ....................................................... 3,110,000
------------
15,268,125
------------
CONGLOMERATES - 4.1%
164,200 Tenneco, Inc. ...................................................... 7,409,525
------------
CONSUMER PRODUCTS - 3.6%
236,200 Mattel, Inc. ....................................................... 6,554,550
------------
DRUGS & MEDICAL PRODUCTS - 3.1%
130,000 Becton, Dickinson & Co. ............................................ 5,638,750
------------
ENERGY - 2.7%
55,300 Triton Energy Ltd.*................................................. 2,682,050
73,091 Union Pacific Resources Group, Inc. ................................ 2,137,912
------------
4,819,962
------------
FOOD SERVICES - 3.2%
127,700 McDonald's Corp. ................................................... 5,778,425
------------
INSURANCE - 6.6%
60,000 ACE Ltd. ........................................................... 3,607,500
138,600 EXEL Ltd. .......................................................... 5,249,475
15,400 Transamerica Corp. ................................................. 1,216,600
41,200 Travelers Group, Inc. .............................................. 1,869,450
------------
11,943,025
------------
MANUFACTURING - 2.3%
54,700 Catepillar, Inc..................................................... 4,116,175
------------
METALS & MINING - 3.2%
196,100 Freeport McMoRan Copper & Gold (Class B)............................ 5,858,487
------------
MISCELLANEOUS FINANCIAL SERVICES - 12.1%
57,200 American Express Co. ............................................... 3,231,800
161,000 Countrywide Credit Industries, Inc. ................................ 4,608,625
77,500 Federal Home Loan Mortgage Corp. ................................... 8,534,687
145,900 Federal National Mortgage Assoc. ................................... 5,434,775
------------
21,809,887
------------
PAPER PRODUCTS - 1.9%
80,000 Champion International Corp. ....................................... 3,460,000
------------
PRINTING/PUBLISHING - .8%
45,600 Donnelly (R.R.) & Sons Co. ......................................... 1,430,700
------------
</TABLE>
A-25
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RAILROADS - 2.9%
86,300 Union Pacific Corp. ................................................ $ 5,188,788
------------
REAL ESTATE - .6%
811 Security Capital Group, Inc. (A).................................... 1,009,517
------------
TECHNOLOGY - 5.9%
29,300 Intel Corp. ........................................................ 3,836,469
190,600 National Semiconductor Corp.*....................................... 4,645,875
75,000 Unitrode Corp.*..................................................... 2,203,125
------------
10,685,469
------------
TELECOMMUNICATIONS - 3.9%
30,000 Sprint Corp. ....................................................... 1,196,250
456,000 Tele-Communications, Inc. (Class A) *............................... 5,956,500
------------
7,152,750
------------
Total Common Stocks (cost - $115,007,880)........................ $154,385,835
------------
Total Investments (cost - $141,697,788)................... 100.3% $181,309,368
Other Liabilities in Excess of Other Assets............... (0.3) (581,274)
----- ------------
Total Net Assets........................................ 100.0% $180,728,094
===== ============
</TABLE>
- ---------------
* Non-income producing security.
(A) Restricted Securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14 9/16/94 $614,371 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock 9/16/94 -- 811 949 1,245
</TABLE>
A-26
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $141,697,788).................................... $181,309,368
Cash........................................................................... 6,937
Receivable from investments sold............................................... 1,047,817
Receivable from fund shares sold............................................... 329,292
Dividends receivable........................................................... 123,034
Interest receivable............................................................ 110,591
Other assets................................................................... 7,932
------------
Total Assets................................................................. 182,934,971
------------
LIABILITIES
Payable for investments purchased.............................................. 1,897,083
Investment advisory fee payable................................................ 137,907
Payable for fund shares redeemed............................................... 132,215
Other payables and accrued expenses............................................ 39,672
------------
Total Liabilities............................................................ 2,206,877
------------
Total Net Assets............................................................. $180,728,094
============
NET ASSETS
Par value ($.01 per share)..................................................... $ 49,914
Paid-in-capital in excess of par............................................... 132,265,145
Accumulated undistributed net investment income................................ 2,161,818
Accumulated undistributed net realized gain on investments..................... 6,639,637
Net unrealized appreciation on investments..................................... 39,611,580
------------
Total Net Assets............................................................. $180,728,094
============
Fund shares outstanding........................................................ 4,991,370
------------
Net asset value per share...................................................... $ 36.21
============
</TABLE>
See accompanying notes to financial statements.
A-27
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 1,924,873
Interest...................................................................... 1,333,194
-----------
Total investment income.................................................... 3,258,067
-----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................ 972,381
Custodian fees (note 1G)...................................................... 31,020
Trustees' fees and expenses................................................... 25,790
Reports and notices to shareholders........................................... 21,135
Auditing, consulting and tax return preparation fees.......................... 13,434
Transfer and dividend disbursing agent fees................................... 11,151
Legal fees.................................................................... 9,476
Miscellaneous................................................................. 23,141
-----------
Total operating expenses................................................... 1,107,528
Less: Investment advisory fees waived (note 2A)............................ (8,220)
Less: Expense offset arrangement (note 1G)................................. (3,060)
-----------
Net operating expenses................................................ 1,096,248
-----------
Net investment income................................................. 2,161,819
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments.............................................. 6,639,637
Net change in unrealized appreciation (depreciation) on investments........... 18,285,659
-----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments............................................................... 24,925,296
-----------
Net increase in net assets resulting from operations............................ $27,087,115
===========
</TABLE>
See accompanying notes to financial statements.
A-28
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 2,161,819 $ 1,378,069
Net realized gain on investments........................... 6,639,637 1,023,914
Net change in unrealized appreciation (depreciation) on
investments.............................................. 18,285,659 23,901,028
------------ -----------
Net increase in net assets resulting from
operations.......................................... 27,087,115 26,303,011
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (1,378,070) (360,801)
Net realized gains......................................... (878,874) --
------------ -----------
Total dividends and distributions to shareholders..... (2,256,944) (360,801)
------------ -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 79,297,599 27,913,098
Reinvestment of dividends and distributions................ 2,256,944 360,801
Cost of shares redeemed.................................... (24,844,767) (9,971,333)
------------ -----------
Net increase in net assets from fund share
transactions........................................ 56,709,776 18,302,566
------------ -----------
Total increase in net assets..................... 81,539,947 44,244,776
NET ASSETS
Beginning of year.......................................... 99,188,147 54,943,371
------------ -----------
End of year (including undistributed net investment income
of $2,161,818 and $1,378,069, respectively).............. $ 180,728,094 $99,188,147
============ ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 2,403,077 1,016,970
Issued in reinvestment of dividends and distributions...... 73,016 15,866
Redeemed................................................... (775,472) (379,452)
------------ -----------
Net increase.......................................... 1,700,621 653,384
============ ===========
</TABLE>
See accompanying notes to financial statements.
A-29
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994, as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio (the "Portfolio"), the Bond Portfolio, the U. S. Government Income
Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts
A-30
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
based on their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-
in-capital or tax return of capital. At December 31, 1996, the Portfolio did not
have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $107,123, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $61,183.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $84,349,690 and $30,263,820,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $40,341,986, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $730,406 and net unrealized appreciation for Federal income tax purposes is
$39,611,580. Federal income tax cost basis of portfolio securities is
$141,697,788 at December 31, 1996.
A-31
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-32
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 30.14 $ 20.83 $ 21.80
----------- ---------- ---------
Income from investment operations:
Net investment income.................. 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments....................... 6.31 9.02 (1.11)
----------- ---------- ---------
Total from investment operations..... 6.74 9.44 (0.97)
----------- ---------- ---------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income.................... (0.41) (0.13) --
Distributions to shareholders from net
realized capital gains............... (0.26) -- --
----------- ---------- ---------
Total dividends and distributions to
shareholders...................... (0.67) (0.13) 0.00
----------- ---------- ---------
Net asset value, end of period......... $ 36.21 $ 30.14 $ 20.83
=========== ========== =========
Total return(2)........................ 22.8% 45.6% (4.4%)
=========== ========== =========
Net assets, end of period.............. $ 180,728,094 $99,188,147 $54,943,371
----------- ---------- ---------
Ratio of net operating expenses to
average net assets(6)................ 0.84%(4,5) 0.66% 0.66%(3)
----------- ---------- ---------
Ratio of net investment income to
average net assets(6)................ 1.66%(4) 1.85% 2.34%(3)
----------- ---------- ---------
Portfolio turnover rate................ 27% 22% 8%
----------- ---------- ---------
Average commission rate................ $ 0.0592 -- --
----------- ---------- ---------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $130,347,107.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 0.85% and
1.65%, respectively, for the year ended December 31, 1996, 0.74% and 1.77%,
respectively, for the year ended December 31, 1995 and 0.96% and 2.04%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Managed Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Managed Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-34
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. TREASURY NOTES AND BONDS - 35.6%
$175,000.. 5.75%, 10/31/97...................................................... $ 175,247
525,000.. 6.50%, 10/15/06...................................................... 527,872
175,000.. 7.25%, 8/15/22....................................................... 185,117
----------
Total U.S. Treasury Notes and Bonds (cost - $911,980)................ $ 888,236
----------
MORTGAGE-RELATED SECURITIES - 34.5%
$ 80,682 Federal Home Loan Mortgage Corp.,
8.50%, 10/15/19...................................................... $ 81,942
Federal National Mortgage Assoc.,
177,953 6.50%, 5/1/26........................................................ 169,723
196,302 7.00%, 1/1/10........................................................ 197,283
154,262 8.00%, 8/1/24........................................................ 157,492
8,207 9.00%, 8/1/02........................................................ 8,553
20,111 9.50%, 12/1/06....................................................... 21,135
73,983 9.50%, 12/1/19....................................................... 80,248
141,214 Government National Mortgage Assoc.,
8.50%, 3/15/25....................................................... 146,684
----------
Total Mortgage-Related Securities (cost - $841,948).................. $ 863,060
----------
CORPORATE NOTES & BONDS - 26.5%
AUTOMOTIVE - 4.3%
$ 100,000 General Motors Acceptance Corp., 8.25%, 2/24/04...................... $ 107,161
----------
CONGLOMERATES - 4.3%
100,000 General Electric Capital Corp., 8.375%, 3/1/01....................... 106,652
----------
MISCELLANEOUS FINANCIAL SERVICES - 17.9%
125,000 Associates Corp., N.A., 5.25%, 3/30/00............................... 120,684
100,000 BarclaysAmerican Corp., 7.875%, 8/15/98.............................. 102,535
100,000 Household Finance Corp., 6.875%, 3/1/03.............................. 100,509
125,000 International Lease Finance Corp., 6.125%, 11/1/99................... 123,714
----------
447,442
----------
Total Corporate Notes & Bonds (cost - $648,295)...................... $ 661,255
----------
Total Investments (cost - $2,402,223)....................... 96.6% $2,412,551
Other Assets in Excess of Other Liabilities................. 3.4 84,895
----- ----------
Total Net Assets............................................ 100.0% $2,497,446
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-35
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $2,402,223)........................................ $2,412,551
Cash............................................................................. 71,315
Interest receivable.............................................................. 32,400
Other assets..................................................................... 393
----------
Total Assets................................................................... 2,516,659
----------
LIABILITIES
Investment advisory fee payable.................................................. 3,750
Other payables and accrued expenses.............................................. 15,463
----------
Total Liabilities.............................................................. 19,213
----------
Total Net Assets............................................................... $2,497,446
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 2,629
Paid-in-capital in excess of par................................................. 2,473,650
Accumulated undistributed net realized gain on investments....................... 10,839
Net unrealized appreciation on investments....................................... 10,328
----------
Total Net Assets............................................................... $2,497,446
==========
Fund shares outstanding.......................................................... 262,938
----------
Net asset value per share........................................................ $ 9.50
==========
</TABLE>
See accompanying notes to financial statements.
A-36
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................................... $ 323,750
--------
OPERATING EXPENSES
Investment advisory fees (note 2).............................................. 24,157
Custodian fees (note 1G)....................................................... 17,341
Auditing, consulting and tax return preparation fees........................... 10,226
Transfer and dividend disbursing agent fees.................................... 9,082
Legal fees..................................................................... 1,918
Reports and notices to shareholders............................................ 1,335
Miscellaneous.................................................................. 3,917
--------
Total operating expenses.................................................... 67,976
Less: Investment advisory fees waived (note 2).............................. (18,557)
Less: Expense offset arrangement (note 1G).................................. (1,195)
--------
Net operating expenses................................................. 48,224
--------
Net investment income.................................................. 275,526
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 10,977
Net change in unrealized appreciation (depreciation) on investments............ (184,990)
--------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ (174,013)
--------
Net increase in net assets resulting from operations............................. $ 101,513
========
</TABLE>
See accompanying notes to financial statements.
A-37
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 275,526 $ 244,328
Net realized gain on investments........................... 10,977 79,769
Net change in unrealized appreciation (depreciation) on
investments ............................................. (184,990) 269,489
----------- -----------
Net increase in net assets resulting from
operations.......................................... 101,513 593,586
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (275,526) (244,328)
Net realized gains......................................... (75,648) --
----------- -----------
Total dividends and distributions to shareholders..... 351,174 (244,328)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 1,066,456 1,574,585
Reinvestment of dividends and distributions................ 350,959 242,735
Cost of shares redeemed.................................... (2,954,763) (1,537,477)
----------- -----------
Net increase (decrease) in net assets from fund share
transactions........................................ (1,537,348) 279,843
----------- -----------
Total increase (decrease) in net assets.......... (1,787,009) 629,101
NET ASSETS
Beginning of year.......................................... 4,284,455 3,655,354
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 2,497,446 $ 4,284,455
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 107,627 165,081
Issued in reinvestment of dividends and distributions...... 36,654 25,011
Redeemed................................................... (310,084) (158,718)
----------- -----------
Net increase (decrease)............................... (165,803) 31,374
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-38
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio (the "Portfolio"), the U. S. Government Income
Portfolio and the Money Market Portfolio. The Trust filed an application with
the Securities and Exchange Commission for an Order approving the substitution
of shares of the U.S. Government series for shares of the Bond series. Notice of
the Application was published January 29, 1997. If the order is issued, the
substitution will be effected shortly thereafter. OpCap Advisors, (the
"Adviser"), a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as
the Trust's investment adviser. The Trust is an investment vehicle for variable
annuity and variable life insurance contracts of various life insurance
companies, and qualified pension and retirement plans. The following is a
summary of significant accounting policies consistently followed by the
Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting
A-39
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains,
respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-capital or tax return of capital. At December 31, 1996,
the Portfolio did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .50%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $6,205,620 and $7,630,072,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $35,184, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $24,856 and net unrealized appreciation for Federal income tax purposes is
$10,328. Federal income tax cost basis of portfolio securities is $2,402,223 at
December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for
A-40
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT (CONTINUED)
PIMCO Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire
the one-third managing general partner interest in Oppenheimer Capital and the
1.0% general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-41
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 9.99 $ 9.20 $ 9.40
Income from investment operations:
Net investment income................... 0.54 0.58 0.17
Net realized and unrealized gain (loss)
on investments........................ (0.34) 0.79 (0.20)
---------- ---------- ----------
Total from investment operations...... 0.20 1.37 (0.03)
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.54) (0.58) (0.17)
Distributions to shareholders from net
realized capital gains................ (0.15) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.69) (0.58) (0.17)
---------- ---------- ----------
Net asset value, end of period.......... $ 9.50 $ 9.99 $ 9.20
========== ========== ==========
Total return(2)......................... 2.2% 15.2% (0.3%)
========== ========== ==========
Net assets, end of period............... $ 2,947,446 $ 4,284,455 $ 3,655,354
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.02%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 5.70%(4) 5.95% 6.26%(3)
---------- ---------- ----------
Portfolio turnover rate................. 138% 134% 7%
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,831,393.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.41% and
5.29%, respectively, for the year ended December 31, 1996, 1.52% and 5.43%,
respectively, for the year ended December 31, 1995 and 2.05% and 5.21%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
OCC ACCUMULATION TRUST -- BOND PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Bond Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-43
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 28.5%
Federal Home Loan Bank,
$ 105,000 5.21%, 2/13/97..................................................... $ 104,347
125,000 5.42%, 1/2/97...................................................... 124,981
Federal Home Loan Mortgage Corp.,
30,000 5.21%, 1/27/97..................................................... 29,887
615,000 5.40%, 1/2/97...................................................... 614,908
120,000 5.42%, 1/3/97...................................................... 119,964
195,000 5.52%, 1/8/97...................................................... 194,791
Federal National Mortgage Assoc.,
10,000 5.36%, 2/18/97..................................................... 9,928
305,000 5.42%, 1/17/97..................................................... 304,265
----------
Total U.S. Government Agency Notes (amortized cost - $1,503,071)... $1,503,071
----------
SHORT-TERM CORPORATE NOTES - 71.6%
AUTOMOTIVE - 7.2%
$ 130,000 Daimer-Benz North America Corp., 5.30%, 3/14/97.................... $ 128,622
125,000 Ford Motor Credit Co., 5.41%, 3/31/97.............................. 123,328
130,000 General Motors Acceptance Corp., 5.30%, 6/23/97.................... 126,689
----------
378,639
----------
BANKING - 19.8%
150,000 Abbey National North America, 5.33%, 3/11/97....................... 148,468
150,000 ABN-Amro North America Finance Inc., 5.40%, 3/6/97................. 148,560
100,000 Bayerische Vereinsbank AG, 5.33%, 1/8/97........................... 99,896
100,000 Commerzbank U.S. Finance Inc., 5.33%, 2/28/97...................... 99,141
150,000 Morgan (J.P.) & Co., Inc., 5.36%, 1/7/97........................... 149,866
110,000 Societe Generale N.A. Inc., 5.50%, 2/18/97......................... 110,000
150,000 Svenska Handelsbanken Inc., 5.53%, 1/16/97......................... 149,654
140,000 Toronto-Dominion Holdings USA Inc., 5.30%, 2/5/97.................. 139,279
----------
1,044,864
----------
CHEMICALS - 2.8%
150,000 U.S. Borax & Chemical Corp., 5.42%, 2/24/97........................ 148,781
----------
CONGLOMERATES - 2.1%
110,000 General Electric Capital Corp., 5.45%, 2/26/97..................... 109,067
----------
ENTERTAINMENT - 2.0%
105,000 Walt Disney Co., 5.30%, 1/6/97..................................... 104,923
----------
MACHINERY/ENGINEERING - 5.1%
120,000 Deere (John) Capital Corp., 5.30%, 4/14/97......................... 118,180
150,000 Pitney Bowes Credit Corp., 5.70%, 1/15/97.......................... 149,668
----------
267,848
----------
</TABLE>
A-44
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------- ----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 22.4%
$ 129,000 American Express Credit Corp., 5.30%, 1/2/97....................... $ 128,981
110,000 Beneficial Corp., 5.31%, 7/14/97................................... 106,852
140,000 Cheltenham & Gloucester Building Society PLC, 5.26%, 3/24/97....... 138,323
100,000 Eksportfinans A/S, 5.39%, 2/18/97.................................. 99,281
150,000 Goldman Sachs Group L.P., 5.43%, 1/13/97........................... 149,729
150,000 Household Finance Corp., 5.42%, 1/6/97............................. 149,887
130,000 Merrill Lynch & Co., Inc., 5.34%, 1/21/97.......................... 129,614
130,000 Morgan Stanley Group, Inc., 5.43%, 1/15/97......................... 129,726
150,000 USAA Capital Corp., 5.32%, 2/24/97................................. 148,803
----------
1,181,196
----------
SOVEREIGN - 2.8%
150,000 Sweden (Kingdom of), 5.30%, 2/3/97................................. 149,271
----------
TECHNOLOGY - 5.2%
130,000 IBM Credit Corp., 5.28%, 3/17/97................................... 128,570
150,000 Motorola Credit Corp., 5.23%, 2/20/97.............................. 148,910
----------
277,480
----------
TELECOMMUNICATIONS - 2.2%
120,000 Ameritech Corp., 5.30%, 3/31/97.................................... 118,428
----------
Total Short-Term Corporate Notes (amortized cost - $3,780,497)..... $3,780,497
----------
Total Investments (amortized cost - $5,283,568)............ 100.1% $5,283,568
Other Liabilities in Excess of Other Assets................ (0.1) (4,526)
----- ----------
Total Net Assets........................................... 100.0% $5,279,042
===== =========
</TABLE>
See accompanying notes to financial statements.
A-45
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost - $5,283,568).............................. $5,283,568
Cash............................................................................. 10,094
Interest receivable.............................................................. 2,235
Other assets..................................................................... 331
----------
Total Assets................................................................... 5,296,228
----------
LIABILITIES
Investment advisory fee payable.................................................. 1,090
Payable for fund shares redeemed................................................. 446
Other payables and accrued expenses.............................................. 15,650
----------
Total Liabilities.............................................................. 17,186
----------
Total Net Assets............................................................... $5,279,042
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 52,791
Paid-in-capital in excess of par................................................. 5,226,264
Accumulated net realized loss on investments..................................... (13)
----------
Total Net Assets............................................................... $5,279,042
==========
Fund shares outstanding.......................................................... 5,279,054
----------
Net asset value per share........................................................ $ 1.00
==========
</TABLE>
See accompanying notes to financial statements.
A-46
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $222,268
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 16,388
Custodian fees (note 1G)........................................................ 10,779
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,066
Legal fees...................................................................... 1,923
Reports and notices to shareholders............................................. 951
Miscellaneous................................................................... 3,703
--------
Total operating expenses..................................................... 53,119
Less: Investment advisory fees waived (note 2)............................... (11,550)
Less: Expense offset arrangement (note 1G)................................... (717)
--------
Net operating expenses.................................................. 40,852
--------
Net investment income................................................... 181,416
REALIZED LOSS ON INVESTMENTS - NET
Net realized loss on investments................................................ (14)
--------
Net increase in net assets resulting from operations.............................. $181,402
========
</TABLE>
See accompanying notes to financial statements.
A-47
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 181,416 $ 203,353
Net realized gain (loss) on investments.................... (14) 47
----------- -----------
Net increase in net assets resulting from
operations.......................................... 181,402 203,400
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (181,416) (203,353)
Net realized gains......................................... (46) --
----------- -----------
Total dividends and distributions to shareholders..... (181,462) (203,353)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 6,146,104 4,346,773
Reinvestment of dividends and distributions................ 182,704 201,653
Cost of shares redeemed.................................... (5,405,790) (3,711,915)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 923,018 836,511
----------- -----------
Total increase in net assets..................... 922,958 836,558
NET ASSETS
Beginning of year.......................................... 4,356,084 3,519,526
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 5,279,042 $ 4,356,084
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 6,146,104 4,346,773
Issued in reinvestment of dividends and distributions...... 182,704 201,653
Redeemed................................................... (5,405,790) (3,711,915)
----------- -----------
Net increase.......................................... 923,018 836,511
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-48
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio, and the
Money Market Portfolio (the "Portfolio"). OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Portfolio securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at cost on
the date of purchase and thereafter assuming a constant dollar amortization to
maturity of the difference between the principal amount due at maturity and the
initial cost of the security.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required. Federal income tax cost basis of
portfolio securities is the same as for financial reporting purposes.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A-49
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with the
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .40%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales/maturities of
investment securities, were $46,988,455 and $46,273,740, respectively.
(4) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-50
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................... 0.04 0.05 0.01
Net realized gain (loss) on
investments........................... (0.00) 0.00 --
---------- ---------- ----------
Total from investment operations...... 0.04 0.05 0.01
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.04) (0.05) (0.01)
Distributions to shareholders from net
realized capital gains................ (0.00) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.04) (0.05) (0.01)
---------- ---------- ----------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total return(2)......................... 4.5% 5.1% 1.2%
========== ========== ==========
Net assets, end of period............... $ 5,279,042 $ 4,356,084 $ 3,519,526
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.01%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 4.43%(4) 4.94% 4.13%(3)
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,097,126.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.30% and
4.13%, respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Money Market Portfolio (one of
the seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-52
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------
<C> <S> <C> <C>
U.S. TREASURY NOTES - 36.3%
$ 100,000 5.75%, 10/31/00.................................................... $ 98,672
475,000 6.50%, 8/15/97..................................................... 477,822
390,000 6.50%, 10/15/06.................................................... 392,133
125,000 7.25%, 5/15/04..................................................... 131,523
140,000 7.375%, 11/15/97................................................... 142,012
----------
Total U.S. Treasury Notes (cost - $1,242,934)...................... $1,242,162
----------
U.S. GOVERNMENT AGENCY NOTES - 62.0%
$ 75,000 Federal Farm Credit Bank, 8.65%, 10/1/99............................. $ 79,629
Federal Home Loan Bank,
60,000 6.94%, 3/14/97..................................................... 60,169
100,000 8.09%, 12/28/04.................................................... 108,781
155,000 8.60%, 8/25/99..................................................... 164,325
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03..................................................... 172,758
125,000 7.75%, 11/7/01..................................................... 131,973
150,000 8.115%, 1/31/05.................................................... 163,266
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98.................................................... 59,597
20,000 5.46%, 1/3/97...................................................... 19,994
20,000 5.46%, 1/7/97...................................................... 19,982
125,000 8.50%, 2/1/05...................................................... 131,426
230,000 8.80%, 7/25/97..................................................... 234,133
55,000 9.20%, 6/10/97..................................................... 55,798
150,000 9.20%, 9/11/00..................................................... 164,274
150,000 Private Export Funding Corp., 9.10%, 10/30/98........................ 157,868
Student Loan Marketing Assoc.
75,000 7.00%, 3/3/98...................................................... 76,008
100,000 7.20%, 11/9/00..................................................... 103,047
Tennessee Valley Authority,
150,000 6.00%, 11/1/00..................................................... 148,430
65,000 8.375%, 10/1/99.................................................... 68,554
----------
Total U.S. Government Agency Notes (cost - $2,103,674)............. $2,120,012
----------
Total Investments (cost - $3,346,608)....................... 98.3% $3,362,174
Other Assets in Excess of Other Liabilities................. 1.7 59,824
----- ----------
Total Net Assets............................................ 100.0% $3,421,998
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-53
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $3,346,608)....................................... $3,362,174
Cash............................................................................ 11,662
Interest receivable............................................................. 63,513
Receivable from fund shares sold................................................ 6,026
Other assets.................................................................... 203
----------
Total Assets.................................................................. 3,443,578
----------
LIABILITIES
Investment advisory fee payable................................................. 4,337
Payable for fund shares redeemed................................................ 1,988
Other payables and accrued expenses............................................. 15,255
----------
Total Liabilities............................................................. 21,580
----------
Total Net Assets.............................................................. $3,421,998
==========
NET ASSETS
Par value ($.01 per share)...................................................... $ 3,297
Paid-in-capital in excess of par................................................ 3,411,026
Accumulated net realized loss on investments.................................... (7,891)
Net unrealized appreciation on investments...................................... 15,566
----------
Total Net Assets.............................................................. $3,421,998
==========
Fund shares outstanding......................................................... 329,735
----------
Net asset value per share....................................................... $ 10.38
==========
</TABLE>
See accompanying notes to financial statements.
A-54
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $153,307
--------
OPERATING EXPENSES
Custodian fees (note 1G)........................................................ 17,308
Investment advisory fees (note 2)............................................... 14,797
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,044
Legal fees...................................................................... 1,753
Reports and notices to shareholders............................................. 737
Miscellaneous................................................................... 3,802
--------
Total operating expenses..................................................... 57,750
Less: Investment advisory fees waived and expenses assumed (note 2).......... (34,102)
Less: Expense offset arrangement (note 1G)................................... (394)
--------
Net operating expenses.................................................. 23,254
--------
Net investment income................................................... 130,053
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized loss on investments................................................ (7,891)
Net change in unrealized appreciation (depreciation) on investments............. (26,424)
--------
Net realized loss and change in unrealized appreciation (depreciation) on
investments................................................................. (34,315)
--------
Net increase in net assets resulting from operations.............................. $ 95,738
========
</TABLE>
See accompanying notes to financial statements.
A-55
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income..................................... $ 130,053 $ 46,710
Net realized gain (loss) on investments................... (7,891) 7,795
Net change in unrealized appreciation (depreciation) on
investments............................................. (26,424) 41,990
----------------- --------------------
Net increase in net assets resulting from
operations......................................... 95,738 96,495
----------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (130,053) (46,710)
Net realized gains........................................ -- (7,795)
----------------- --------------------
Total dividends and distributions to shareholders.... (130,053) (54,505)
----------------- --------------------
FUND SHARE TRANSACTIONS
Net proceeds from sales................................... 2,180,216 1,442,074
Reinvestment of dividends and distributions............... 130,663 53,894
Cost of shares redeemed................................... (297,024) (95,500)
----------------- --------------------
Net increase in net assets from fund share
transactions....................................... 2,013,855 1,400,468
----------------- --------------------
Total increase in net assets.................... 1,979,540 1,442,458
NET ASSETS
Beginning of period....................................... 1,442,458 0
----------------- --------------------
End of period (including undistributed net investment
income of $0 and $0, respectively)...................... $ 3,421,998 $1,442,458
============== ===============
SHARES ISSUED AND REDEEMED
Issued.................................................... 209,939 139,749
Issued in reinvestment of dividends and distributions..... 12,589 5,140
Redeemed.................................................. (28,592) (9,090)
----------------- --------------------
Net increase......................................... 193,936 135,799
============== ===============
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-56
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as amended, as a
diversified, open-ended management investment company. The Trust is authorized
to issue an unlimited number of seven classes of shares of beneficial interest
at $.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio (the
"Portfolio") and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The U.S. Government Income Portfolio one of the Trust's
seven portfolios, commenced operations on January 3, 1995. The Trust is an
investment vehicle for variable annuity and variable life insurance contracts of
various life insurance companies, and qualified pension and retirement plans.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and
A-57
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
accumulated earnings and profits for Federal income tax purposes, they are
reported as distributions of paid-in-capital or tax return of capital. At
December 31, 1996, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .60%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee and to assume any necessary expenses to limit total operating expenses of
the Portfolio to 1.00% (net of expense offsets) of average daily net assets on
an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $2,669,452 and $705,798,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $22,879, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $9,001 and net unrealized appreciation for Federal income tax purposes is
$13,878. Federal income tax cost basis of portfolio securities is $3,348,296 at
December 31, 1996.
(5) CAPITAL LOSS CARRY-FORWARD
For the year ended December 31, 1996, the Portfolio incurred net realized
capital losses of $6,203 which are available as a reduction against future net
capital gains realized before the end of fiscal year 2004 to the extent provided
by regulations. To the extent that this capital loss carry-forward is used to
offset future net capital gains, it is possible that gains so offset will not be
distributed to shareholders.
(6) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock
A-58
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(6) SUBSEQUENT EVENT (CONTINUED)
Exchange and of which Oppenheimer Financial Corp. is the sole general partner,
owns the remaining two-thirds interest. On February 13, 1997, PIMCO Advisors
L.P., a registered investment adviser, signed a definitive agreement with
Oppenheimer Group, Inc. and its subsidiary Oppenheimer Financial Corp. for PIMCO
Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire the
one-third managing general partner interest in Oppenheimer Capital and the 1.0%
general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-59
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 10.62 $ 10.00
---------- ----------
Income from investment operations:
Net investment income.................................. 0.55 0.60
Net realized and unrealized gain (loss) on
investments.......................................... (0.24) 0.68
---------- ----------
Total from investment operations..................... 0.31 1.28
---------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.55) (0.60)
Distributions to shareholders from net realized capital
gains................................................ -- (0.06)
---------- ----------
Total dividends and distributions to shareholders.... (0.55) (0.66)
---------- ----------
Net asset value, end of period......................... $ 10.38 $ 10.62
========== ==========
Total return(2)........................................ 3.0% 13.1%
========== ==========
Net assets, end of period.............................. $ 3,421,998 $1,442,458
---------- ----------
Ratio of net operating expenses to average net
assets(6)............................................ 0.96%(4,5) 0.75%(3)
---------- ----------
Ratio of net investment income to average net
assets(6)............................................ 5.27%(4) 5.75%(3)
---------- ----------
Portfolio turnover rate................................ 31% 65%
---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $2,466,244.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived all of its fees and
assumed a portion of the Portfolio's operating expenses. Additionally, for
the year ended December 31, 1996, the Portfolio benefited from an expense
offset arrangement with its custodian bank. If such waivers, assumptions and
expense offsets had not been in effect, the ratios of net operating expenses
to average daily net assets and the ratios of net investment income to
average daily net assets would have been 2.34% and 3.87%, respectively, for
the year ended December 31, 1996, and 4.73% and 1.77%, annualized,
respectively for the period January 3, 1995 (commencement of operations) to
December 31, 1995.
A-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- U.S. Government Income Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the U.S. Government Income
Portfolio (one of the seven portfolios constituting OCC Accumulation Trust,
hereafter referred to as the "Portfolio") at December 31, 1996, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and for the period January 3,
1995 (commencement of operations) through December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-61
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 9.3%
US$1,585,000 Federal Home Loan Bank, 5.25%, 1/2/97 (cost - $1,584,769).......... $ 1,584,769
-------
CONVERTIBLE CORPORATE NOTES - 1.1%
HONG KONG - .2%
BANKING - .2%
40,000 Bangkok Bank Public Co., 3.25%, 3/3/04............................. $ 39,150
-------
JAPAN - .9%
BANKING - .9%
130,000 Mitsubishi Bank Ltd., 3.50%, 11/30/02.............................. 138,450
-------
Total Convertible Corporate Notes (cost-$188,795).................. $ 177,600
-------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 87.2%
AUSTRALIA - .6%
PAPER PRODUCTS - .6%
17,000 WMC Ltd. .......................................................... $ 107,154
-------
AUSTRIA - .3%
AIRPORTS - .3%
900 Flughafen Wein AG.................................................. 45,879
-------
BERMUDA - 4.5%
INSURANCE - 4.5%
12,200 ACE Ltd. .......................................................... 733,525
800 EXEL Ltd. ......................................................... 30,300
-------
763,825
-------
BRAZIL - 1.5%
BANKING - .6%
6,000 Bompreco Supermecados Norde*....................................... 108,000
-------
PAPER PRODUCTS - .3%
6,200 Aracruz Celulose SA................................................ 51,150
-------
TEXTILES/APPAREL - .3%
150 Compahnia de Tecidos Norte de Minas-Conteminas..................... 47,870
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
90 Compahnia Cervejaria Brahma........................................ 49,196
-------
Total Brazilian Common Stocks...................................... 256,216
-------
CANADA - 2.1%
ELECTRONICS - .5%
11,000 CAE, Inc. ......................................................... 83,145
-------
</TABLE>
A-62
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
ENERGY - .6%
1,600 Precision Drilling Corp.*.......................................... $ 55,737
1,100 Suncor, Inc. ...................................................... 45,468
-------
101,205
-------
PRINTING/PUBLISHING - .3%
2,150 Thomson Corp. ..................................................... 47,261
-------
SECURITY/INVESTIGATION - .4%
3,500 Unican Security Systems Ltd. ...................................... 77,704
-------
TRANSPORTATION - .3%
1,875 Canadian Pacific Ltd. ............................................. 49,638
-------
Total Canadian Common Stocks....................................... 358,953
-------
CZECHOSLOVAKIA - .5%
TELECOMMUNICATIONS - .5%
700 SPT Telekom AS*.................................................... 87,149
-------
FINLAND - 1.7%
DRUGS/MEDICAL PRODUCTS - .3%
7,600 Oy Tamro AB........................................................ 50,722
-------
TELECOMMUNICATIONS - 1.4%
4,000 Oy Nokia AB........................................................ 231,304
-------
Total Finnish Common Stocks........................................ 282,026
-------
FRANCE - 3.5%
ELECTRONICS - .3%
1,159 Schneider SA....................................................... 53,589
-------
ENERGY - .7%
1,516 Total SA........................................................... 123,302
-------
INSURANCE - 1.1%
1,500 AXA................................................................ 95,404
2,400 Scor SA............................................................ 84,417
-------
179,821
-------
MANUFACTURING - .4%
1,356 Michelin (CGDE).................................................... 73,203
-------
MISCELLANEOUS FINANCIAL SERVICES - .1%
800 Compagnie Financiere de Paris...................................... 24,100
-------
POWER/UTILITIES - .5%
632 Compagnie Generale des Eaux........................................ 78,323
-------
</TABLE>
A-63
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
TECHNOLOGY - .4%
1,000 SGS-Thomson Microelectronics N.V.*................................. $ 70,733
-------
Total French Common Stocks......................................... 603,071
-------
GERMANY - 3.3%
CHEMICALS - .7%
900 SGL Carbon AG...................................................... 113,465
-------
COMPUTER SERVICES - .8%
1,000 SAP AG............................................................. 136,145
-------
CONSUMER PRODUCTS - .7%
1,300 Adidas AG.......................................................... 112,360
-------
DRUGS/MEDICAL PRODUCTS - .4%
1,150 Gehe AG............................................................ 73,613
-------
INSURANCE - .7%
160 Koelnische Rueckversicherungs AG................................... 119,574
-------
Total German Common Stocks......................................... 555,157
-------
HONG KONG - 1.4%
BANKING - .6%
180,000 Manhattan Credit Card Co., Ltd. ................................... 91,344
-------
CONSUMER PRODUCTS - .6%
280,000 Yue Yuen Industrial Holdings....................................... 106,794
-------
WHOLESALE - .2%
110,000 China Hong Kong Photo Products Holdings Ltd. ...................... 36,977
-------
Total Hong Kong Common Stocks...................................... 235,115
-------
HUNGARY - 1.0%
CONGLOMERATES - .5%
10,450 Benpres Holdings Corp.*............................................ 84,835
-------
DRUGS/MEDICAL PRODUCTS - .5%
1,550 Gedeon Richter Ltd., GDR........................................... 90,025
-------
Total Hungarian Common Stocks...................................... 174,860
-------
INDONESIA - .1%
WHOLESALE - .1%
15,000 PT Tigaraksa Satria................................................ 20,957
-------
ITALY - 1.6%
CONSUMER PRODUCTS - .8%
6,500 Bulgari S.p.A. .................................................... 131,971
-------
</TABLE>
A-64
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ITALY (CONTINUED)
TELECOMMUNICATIONS - .8%
32,000 Telecom Italia S.p.A. ............................................. $ 62,439
49,000 Telecom Italia Mobile S.p.A.*...................................... 69,931
-------
132,370
-------
Total Italian Common Stocks........................................ 264,341
-------
JAPAN - 9.5%
AUTOMOTIVE - 1.0%
6,000 Calsonic Corp. .................................................... 33,365
3,000 Honda Motor Co., Ltd. ............................................. 85,744
4,000 Murakami Corp. .................................................... 47,319
-------
166,428
-------
BANKING - .9%
600 Aeon Credit Service Co., Ltd. ..................................... 37,302
22,000 Daiwa Bank Ltd. ................................................... 114,930
-------
152,232
-------
BUILDING & CONSTRUCTION - .7%
3,000 Aoki Marine Co., Ltd. ............................................. 14,765
3,000 Maeda Corp. ....................................................... 22,200
1,000 Nichiei Co., Ltd. ................................................. 73,828
-------
110,793
-------
COMPUTER SERVICES - .2%
1,000 Konami Co., Ltd. .................................................. 34,107
-------
CONGLOMERATES - .2%
2,000 Inaba Denkisangyo Co. ............................................. 38,339
-------
CONSUMER PRODUCTS - .9%
7,000 Canon, Inc. ....................................................... 154,736
-------
ELECTRICAL ENGINEERING - .2%
3,100 Kinden Corp. ...................................................... 39,349
-------
ELECTRONICS - 2.5%
700 Kyocera Corp. ADR ................................................. 85,400
8,000 Mitsubishi Electric Corp. ......................................... 47,664
3,000 Omron Corp. ....................................................... 56,472
1,000 Rohm Co. .......................................................... 65,625
4,000 Sodick Co. ........................................................ 33,158
2,000 Sony Corp. ........................................................ 131,077
-------
419,396
-------
INSURANCE - .2%
9,000 Fuji Fire & Marine Insurance....................................... 33,650
-------
</TABLE>
A-65
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
MANUFACTURING - .2%
5,000 Japan Synthetic Rubber............................................. $ 32,812
-------
METALS/MINING - .6%
22,000 Sumitomo Metal Industries.......................................... 54,140
3,000 Toho Titanium*..................................................... 43,520
-------
97,660
-------
MISCELLANEOUS FINANCIAL SERVICES - .6%
2,000 Credit Saison Co., Ltd. ........................................... 44,728
300 Shohkoh Fund....................................................... 65,279
-------
110,007
-------
POWER/UTILITIES - .5%
4,000 Kyushu Electric Power.............................................. 77,714
-------
RETAIL - .4%
9,000 Maruetsu........................................................... 61,471
-------
SECURITY/INVESTIGATION - .2%
4,000 Toyo Tec Co. Ltd. ................................................. 38,339
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
3,000 Mikuni Coca-Cola Bottling.......................................... 38,857
-------
Total Japanese Common Stocks....................................... 1,605,890
-------
LICHTENSTEIN - .2%
BANKING - .2%
65 Liechtenstein Global Trust AG...................................... 33,314
-------
MEXICO - .7%
BUILDING & CONSTRUCTION - .3%
11,000 Corporacion GEO, SA de CV*......................................... 54,217
-------
CONGLOMERATES - .4%
14,000 Alfa S.A. de CV*................................................... 64,647
-------
Total Mexican Common Stocks........................................ 118,864
-------
NETHERLANDS - 1.8%
BUILDING & CONSTRUCTION - .2%
800 Kondor Wessells Groep NV........................................... 32,389
-------
IMPORTING/EXPORTING - .4%
753 Hagemeyer NV....................................................... 60,231
-------
MISCELLANEOUS FINANCIAL SERVICES - .5%
2,478 ING Groep NV....................................................... 89,274
-------
</TABLE>
A-66
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS (CONTINUED)
PRINTING/PUBLISHING - .7%
5,800 Ver Ned Uitgevers.................................................. $ 121,274
-------
Total Netherlands Common Stocks.................................... 303,168
-------
NEW ZEALAND - .4%
FOOD SERVICES - .4%
160,392 AFFCO Holdings Ltd. ............................................... 70,303
-------
NORWAY - .5%
BANKING - .5%
12,700 Fokus Bank AS...................................................... 86,531
-------
SINGAPORE - .6%
PRINTING/PUBLISHING - .6%
5,000 Singapore Press Holdings Ltd. ..................................... 98,621
-------
SOUTH KOREA - .4%
TELECOMMUNICATIONS - .4%
5,150 Korea Mobile Telecom ADR........................................... 66,306
-------
SPAIN - 2.0%
BANKING - .6%
2,400 Corporacion Bancaria de Espana SA.................................. 107,406
-------
ENERGY - .7%
2,900 Repsol SA.......................................................... 111,242
-------
MANUFACTURING - .7%
1,800 Vidrala SA......................................................... 124,506
-------
Total Spanish Common Stocks........................................ 343,154
-------
SWEDEN - 3.4%
BANKING - .5%
2,700 Nordbanken AB*..................................................... 81,753
-------
DRUGS & MEDICAL PRODUCTS - .6%
1,900 ASTRA AB........................................................... 93,887
-------
MACHINERY/ENGINEERING - 1.7%
750 ABB AB............................................................. 84,679
6,500 Atlas Copco AB..................................................... 157,260
3,000 Kalmar Industries AB............................................... 49,927
-------
291,866
-------
PAPER PRODUCTS - .6%
3,750 AssiDoman AB....................................................... 104,474
-------
Total Swedish Common Stocks........................................ 571,980
-------
</TABLE>
A-67
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWITZERLAND - 3.1%
BANKING - .6%
1,050 CS Holding AG...................................................... $ 107,863
-------
BUILDING & CONSTRUCTION - .4%
100 Holderbank Financiere Glaris AG.................................... 71,423
-------
DRUGS & MEDICAL PRODUCTS - 1.7%
120 Ares-Serono Group.................................................. 114,486
150 NOVARTIS AG*....................................................... 171,797
-------
286,283
-------
MANUFACTURING - .4%
25 Sig Schweizerische Industrie - Gesellschaft Holding AG............. 63,317
-------
Total Swiss Common Stocks.......................................... 528,886
-------
THAILAND - .6%
WHOLESALE - .6%
24,000 Siam Makro Public Co., Ltd. ....................................... 105,747
-------
UNITED KINGDOM - 4.9%
AUTOMOTIVE - .6%
26,863 LucasVarity PLC*................................................... 102,399
-------
COMPUTER SERVICES - .4%
26,000 Amstrad PLC........................................................ 65,256
-------
ELECTRONICS - .9%
8,000 Siebe PLC.......................................................... 148,569
-------
MANUFACTURING - .3%
32,000 Bridon PLC......................................................... 55,371
-------
METALS/MINING - .4%
12,000 Antofagasta Holdings PLC........................................... 69,899
-------
MISCELLANEOUS FINANCIAL SERVICES - .8%
18,000 Lloyds TSB Group PLC............................................... 132,757
-------
RETAIL - 1.5%
13,116 Dixon Group PLC.................................................... 122,015
19,515 Safeway, Inc. ..................................................... 135,406
-------
257,421
-------
Total United Kingdom Common Stocks................................. 831,672
-------
UNITED STATES - 37.0%
AEROSPACE/DEFENSE - 6.3%
3,000 Lockheed Martin Corp. ............................................. 274,500
12,500 McDonnell Douglas Corp. ........................................... 800,000
-------
1,074,500
-------
</TABLE>
A-68
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
BANKING - 6.1%
4,000 Citicorp........................................................... $ 412,000
2,300 Wells Fargo & Co. ................................................. 620,425
-------
1,032,425
-------
BUILDING & CONSTRUCTION - .2%
2,000 Newport News Shipbuilding, Inc.*................................... 30,000
-------
CHEMICALS - 5.0%
5,000 du Pont (E.I.) de Nemours & Co. ................................... 471,875
4,000 Hercules, Inc. .................................................... 173,000
5,000 Monsanto Co. ...................................................... 194,375
-------
839,250
-------
CONGLOMERATES - 2.7%
10,000 Tenneco, Inc. ..................................................... 451,250
-------
CONSUMER PRODUCTS - 1.8%
11,000 Mattel, Inc. ...................................................... 305,250
-------
DRUGS & MEDICAL PRODUCTS - 2.0%
8,000 Becton, Dickinson & Co. ........................................... 347,000
-------
ENTERTAINMENT - .2%
2,000 Harrah's Entertainment, Inc.*...................................... 39,750
-------
FOOD SERVICES - 1.6%
6,000 McDonald's Corp. .................................................. 271,500
-------
METALS/MINING - .7%
4,000 Freeport McMoRan Copper & Gold (Class B)........................... 119,500
-------
MISCELLANEOUS FINANCIAL SERVICES - 3.9%
6,000 Federal Home Loan Mortgage Corp. .................................. 660,750
-------
PAPER PRODUCTS - .3%
1,100 Champion International, Inc. ...................................... 47,575
-------
RAILROADS - 1.4%
4,000 Union Pacific Corp. ............................................... 240,500
-------
TECHNOLOGY - 1.4%
1,000 Intel Corp. ....................................................... 130,938
4,000 National Semiconductor Corp.*...................................... 97,500
-------
228,438
-------
TELECOMMUNICATIONS - 2.4%
1,300 Loral Space & Communications*...................................... 23,888
30,000 Tele-Communications, Inc. (Class A)*............................... 391,875
-------
415,763
-------
</TABLE>
A-69
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
TRANSPORTATION - 1.0%
2,000 AMR Corp.*......................................................... $ 176,250
-----------
Total United States Common Stocks.................................. 6,279,701
-----------
Total Common Stocks (cost - $13,393,679)........................... $14,798,840
-----------
Total Investments (cost - $15,167,243)........................ 97.6% $16,561,209
Other Assets in Excess of Other Liabilities................... 2.4 411,279
----- -----------
Total Net Assets.............................................. 100.0% $16,972,488
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-70
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $15,167,243)..................................... $16,561,209
Foreign currencies (cost - $339,499)........................................... 335,801
Receivable from investments sold............................................... 69,056
Receivable from fund shares sold............................................... 43,500
Dividends receivable........................................................... 10,619
Foreign withholding taxes reclaimable.......................................... 3,653
Interest receivable............................................................ 1,412
Other assets................................................................... 483
-----------
Total Assets................................................................. 17,025,733
-----------
LIABILITIES
Due to custodian............................................................... 19,178
Investment advisory fees payable............................................... 7,840
Payable for investments purchased.............................................. 3,696
Foreign withholding taxes payable.............................................. 418
Other payables and accrued expenses............................................ 22,113
-----------
Total Liabilities............................................................ 53,245
-----------
Total Net Assets............................................................. $16,972,488
===========
NET ASSETS
Par value ($.01 per share)..................................................... $ 12,826
Paid-in-capital in excess of par............................................... 15,567,305
Accumulated undistributed net investment income................................ 2,107
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies................................ 1,390,250
-----------
Total Net Assets............................................................. $16,972,488
===========
Fund shares outstanding........................................................ 1,282,602
-----------
Net asset value per share...................................................... $ 13.23
-----------
</TABLE>
See accompanying notes to financial statements.
A-71
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $8,706)....................... $ 126,858
Interest..................................................................... 59,746
----------
Total investment income................................................... 186,604
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)........................................... 71,811
Custodian fees (note 1G)..................................................... 59,592
Auditing, consulting and tax return preparation fees......................... 12,394
Transfer and dividend disbursing agent fees.................................. 9,147
Legal fees................................................................... 2,083
Reports and notices to shareholders.......................................... 1,592
Miscellaneous................................................................ 9,757
----------
Total operating expenses.................................................. 166,376
Less: Investment advisory fees waived (note 2A)........................... (37,689)
Less: Expense offset arrangement (note 1G)................................ (15,447)
----------
Net operating expenses............................................... 113,240
----------
Net investment income................................................ 73,364
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS -- NET
Net realized gain on investments............................................. 85,039
Net realized loss on foreign currency transactions........................... (6,772)
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies................................................................ 1,247,855
----------
Net realized gain (loss) and change in unrealized appreciation
(depreciation) on investments and translation of other assets and
liabilities denominated in foreign currencies............................ 1,326,122
----------
Net increase in net assets resulting from operations........................... $1,399,486
==========
</TABLE>
See accompanying notes to financial statements.
A-72
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 73,364 $ 12,301
Net realized gain on investments............................ 85,039 57,143
Net realized loss on foreign currency transactions.......... (6,772) (2,877)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies............. 1,247,855 142,395
----------- -----------
Net increase in net assets resulting from operations... 1,399,486 208,962
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (60,776) (8,174)
Net realized gains on investments........................... (89,998) (57,143)
----------- -----------
Total dividends and distributions to shareholders...... (150,774) (65,317)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 16,110,547 2,683,554
Reinvestment of dividends and distributions................. 150,774 65,317
Cost of shares redeemed..................................... (3,428,866) (1,195)
----------- -----------
Net increase in net assets from fund share
transactions......................................... 12,832,455 2,747,676
----------- -----------
Total increase in net assets...................... 14,081,167 2,891,321
NET ASSETS
Beginning of period......................................... 2,891,321 0
----------- -----------
End of period (including undistributed net investment income
of $2,107 and 4,127, respectively)........................ $16,972,488 $2,891,321
=========== ===========
SHARES ISSUED AND REDEEMED
Issued...................................................... 1,304,431 243,412
Issued in reinvestment of dividends and distributions....... 11,415 5,636
Redeemed.................................................... (282,190) (102)
----------- -----------
Net increase........................................... 1,033,656 248,946
=========== ===========
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-73
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned (99%)
subsidiary of Oppenheimer Capital, serves as the Trust's investment adviser. The
Global Equity Portfolio, (the "Portfolio"), one of the Trust's seven portfolios,
commenced operations on March 1, 1995. The Trust is an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies and qualified pension and retirement plans. The following is a summary
of significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities listed on a U.S. or foreign stock exchange or traded
in the over-the-counter National Market System are valued each business day at
the last reported sale price; if there are no such reported sales, the
securities are valued at their last quoted bid price. Other securities traded
over-the-counter and not part of the National Market System are valued at the
last quoted bid price. Investment debt securities (other than short-term
obligations) are valued each business day by an independent pricing service
(approved by the Board of Trustees) using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of sixty
days or less are valued at amortized cost or amortized value, which approximates
market value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith by
the Board of Trustees. Investments in countries in which the Portfolio may
invest may involve certain considerations and risks not typically associated
with domestic investments as a result of, among others, the possibility of
future political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold has
been determined on the basis of identified cost. Dividend income and other
distributions are recorded on the ex-dividend date, except certain dividends or
other distributions from foreign securities which are recorded as soon as the
information is available after the ex-dividend date. Interest income is accrued
as earned.
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are included
in the Portfolio's Statement of Operations. Since the net assets of the
Portfolio are
A-74
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSLATION (CONTINUED)
presented at the foreign exchange rates and market prices at the close of the
period, the Portfolio does not isolate that portion of the results of operations
arising as a result of changes in the exchange rates from fluctuations arising
from changes in the market price of securities.
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment: temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-
in-capital or tax return of capital.
The following table discloses the cumulative effect of differences
reclassified from accumulated net realized foreign currency loss and accumulated
net realized loss on investments to accumulated undistributed net investment
income:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET ACCUMULATED NET UNDISTRIBUTED
REALIZED FOREIGN REALIZED LOSS NET INVESTMENT
CURRENCY LOSS ON INVESTMENTS INCOME
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
$9,649 $4,959 ($14,608)
</TABLE>
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has agreed to waive that portion of the advisory fee necessary
to limit total operating expenses of the Portfolio to 1.25% (net of expense
offsets) of average daily net assets on an annual basis.
A-75
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $41,242, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $4,563.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996 purchases and sales of investment
securities, other than short-term securities, were $15,233,328 and $3,081,962,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $1,780,424, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $386,458 and net unrealized appreciation for Federal income tax purposes is
$1,393,966. Federal income tax cost basis of portfolio securities is $16,561,209
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-76
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 11.61 $ 10.00
----------- ----------
Income from investment operations:
Net investment income.................................. 0.04 0.05
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and translation of
other assets and liabilities denominated in foreign
currencies........................................... 1.70 1.83
----------- ----------
Total from investment operations..................... 1.74 1.88
----------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.05) (0.03)
Distributions to shareholders from net realized capital
gains................................................ (0.07) (0.24)
----------- ----------
Total dividends and distributions to shareholders.... (0.12) (0.27)
----------- ----------
Net asset value, end of period......................... $ 13.23 $ 11.61
=========== ==========
Total return(2)........................................ 15.0% 18.9%
=========== ==========
Net assets, end of period.............................. $16,972,488 $2,891,321
----------- ----------
Ratio of net operating expenses to average net
assets(5)............................................ 1.42%(3,4) 1.25%(6)
----------- ----------
Ratio of net investment income to average net
assets(5)............................................ 0.81%(3) 1.02%(6)
----------- ----------
Portfolio turnover rate................................ 40% 67%
----------- ----------
Average commission rate................................ $ 0.0254 --
----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Average net assets for the year ended December 31, 1996 were $9,072,948.
(4) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(5) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income (loss) to average daily net assets would have been 1.83%
and 0.22%, respectively, for the year ended December 31, 1996, and 3.94.%
and (1.67)%, annualized, respectively, for the period March 1, 1995
(commencement of operations) to December 31, 1995.
(6) Annualized.
A-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust - Global Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Portfolio (one of
the seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year then ended and for the period March 1, 1995 (commencement of
operations) through December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-78
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
Included in the Prospectus:
Financial Highlights
Included in Part B:
Schedule of Investments, Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets,
Financial Highlights, Notes to Financial Statements and Report of
Independent Accountants for the fiscal year ended December 31,
1996.
Included in Part C:
None
C-1
<PAGE>
EXHIBITS:
(1) (a) Declaration of Trust.
(b) Amendment to Declaration of Trust dated September 1, 1994.
(c) Amendment to Declaration of Trust dated September 16, 1994.
(d) Amendment to Declaration of Trust dated April 22, 1996 -
Previously filed with Post-Effective Amendment No. 2.
(2) By-Laws of Registrant.
(3) Not Applicable.
(4) Not Applicable.
(5) Investment Advisory Agreement dated September 16, 1994 as amended
May 1, 1996 - Previously filed with Post Effective Amendment
No. 2.
(6) Distribution Agreement.
(7) Not Applicable.
(8) Custody Agreement.
(9) (a) Transfer Agency and Service Agreement.
(b) Participation Agreement for American Enterprise Life
Insurance Company.
(c) Participation Agreement for Connecticut General Life
Insurance Companyand amendment dated August 30, 1996.
(d) Participation Agreement for IL Annuity and Insurance Company
Previously filed with Post Effective Amendment No. 2.
(e) Participation Agreement for Connecticut General Life
Insurance Company (Separate Account T3)-Previously filed with
Post Effective Amendment No. 2.
(f) Fund Participation Agreement for CIGNA Life Insurance
Company dated September 5, 1996.
C-2
<PAGE>
(10) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and non-assessable.
(11) Consent of Independent Accountants.
(12) Not Applicable.
(13) Agreement relating to initial capital.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule showing computation of performance quotations provided
in response to Item 22.
(17) Financial Data Schedules.
C-3
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is presently controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Number of Record
Holders as of
Title of Class April 7, 1997
--------------
SHARES OF BENEFICIAL INTEREST
Equity Portfolio . . . . . . . . . . . . . . . . . . 6
Managed Portfolio. . . . . . . . . . . . . . . . . . 15
Money Market Portfolio . . . . . . . . . . . . . . . 4
Small Cap Portfolio. . . . . . . . . . . . . . . . . 14
Global Equity Portfolio. . . . . . . . . . . . . . . 5
U.S. Government Income Portfolio . . . . . . . . . . 5
ITEM 27. INDEMNIFICATION
Pursuant to Article V, Sec. 5.3 of the Registrant's Declaration
of Trust, the Trustees shall provide for indemnification by the Trust
of any present or former trustee, officer or agent in connection with
any claim, action, suit or proceeding in which he becomes involved as
a party or otherwise by virtue of his being, or having been, a
trustee, officer or agent of the Trust. The Trust By-Laws provide
that, in other than derivative or shareholder suits, trustees,
officers and/or agents will be indemnified against expenses of actions
or omissions if the actions or omissions complained of were in good
faith and reasonably believed to be in and not opposed to the best
interests of the Trust, or, if a criminal action, the accused had no
cause to believe his conduct was unlawful.
In derivative and shareholder actions, such trustee, officer
and/or agent shall be indemnified against expenses except where
liability arises by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties as described in Section
17(h) and (i) of the Investment Company Act of 1940. Either Trustees
not a party to the action, shareholders or independent legal counsel
by written opinion may, in appropriate circumstances, decide questions
of indemnification under the By-Laws.
The Trust may purchase insurance insuring its officers and
trustees against certain liabilities in their capacity as such, and
insuring the Trust against any payments which it is obligated to make
to such persons under any foregoing indemnification provisions.
C-4
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in the Prospectus and "Investment
Management and Other Services" in the Additional Statement regarding
the business of the investment adviser. Set forth below is
information as to the business, profession, vocation or employment of
a substantial nature of each of the officers and directors of the
investment adviser.
Name & Current Position with OpCap Other Business and Connections During
Advisors the Past Two Years
Thomas E. Duggan, General Counsel & Managing Director and General Counsel of
Secretary Oppenheimer Capital; Assistant Secretary
of Oppenheimer Financial Corp.: General
Counsel and Secretary of Oppenheimer
Capital Limited and OCC Distributors.
Bernard H. Garil, President Director of Oppenheimer Capital Trust
Company.
Joseph M. La Motta, Chairman Chairman and Chief Executive Officer of
Oppenheimer Capital; Director &
Executive Vice President of Oppenheimer
Financial Corp. and Oppenheimer Group,
Inc.; General Partner of Oppenheimer &
Co., L.P.; Director of Oppenheimer
Capital Trust Company; Director and
President of Oppenheimer Capital Limited;
Chairman of OCC Distributors.
Sheldon M. Siegel, Treasurer and Managing Director/Treasurer/Chief
Chief Financial Financial Officer
C-5
<PAGE>
Officer of Oppenheimer Capital; Director of
Oppenheimer Capital Trust Company;
Treasurer and Chief Financial Officer of
Oppenheimer Capital Limited and OCC
Distributors
The address of OpCap Advisors is 200 Liberty Street, New York, New York
10281.
ITEM 29. PRINCIPAL UNDERWRITER
(a) OCC Distributors acts as principal underwriter for the
Registrant, OCC Cash Reserves, Inc., and The Saratoga Advantage
Trust.
(b) Set forth below is certain information pertaining to the partners
and officers of OCC Distributors, Registrant's Principal
Underwriter; the Principal Business Address of EACH IS ONE WORLD
FINANCIAL CENTER, NEW YORK, NEW YORK, 10281:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- --------------------------- --------------------- ---------------------
Oppenheimer Capital General Partner None
Oppenheimer Financial Corp. General Partner None
Peter Muratore President None
Sheldon Siegel Treasurer Treasurer
Thomas E. Duggan Secretary None
(c) Not applicable.
ITEM 30. LOCATION OF REQUIRED RECORDS -- RULE 31a-1
(Except those maintained by Custodian and Transfer Agent)
OpCap Advisors
One World Financial Center
New York, NY 10281
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
C-6
<PAGE>
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to assist shareholder communication
in accordance with the provisions of Section 16 of the Investment
Company Act of 1940 and to call a meeting of shareholders for the
purpose of voting upon the question of the removal of a Trustee
or Trustees when requested in writing to do so by the holders of
at least 10% of the Registrant's outstanding shares of beneficial
interest.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report to shareholders upon request and without charge, if the
information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned thereto duly authorized
in the City of New York, and State of New York on the day of , 19 .
OCC ACCUMULATION TRUST
s/Joseph M. La Motta
-----------------------------
Joseph M. La Motta, President
Attest:
s/Deborah Kaback
- -------------------------
Deborah Kaback, Secretary
Pursuant to the requirements of the Securities Act of 1933 this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
OCC ACCUMULATION TRUST
Date
s/Joseph M. La Motta April 15, 1997
- -------------------------------------- --------------
Joseph M. La Motta, President, Trustee
s/Paul Y. Clinton April 15, 1997
- -------------------------------------- --------------
Paul Y. Clinton, Trustee
s/Thomas W. Courtney April 15, 1997
- -------------------------------------- --------------
Thomas W. Courtney, Trustee
s/Lacy B. Herrmann April 15, 1997
- -------------------------------------- --------------
Lacy B. Herrmann, Trustee
s/George Loft April 15, 1997
- -------------------------------------- --------------
George Loft, Trustee
s/Deborah Kaback April 15, 1997
- -------------------------------------- --------------
Deborah Kaback, Secretary
s/Sheldon Siegel April 15, 1997
- -------------------------------------- --------------
Sheldon Siegel, Treasurer
C-8
<PAGE>
OCC ACCUMULATION TRUST
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Pages
- ----------- ------------
(1) (a) Declaration of Trust dated May 12, 1994.
(1) (b) Amendment to Declaration of Trust dated September 1, 1994.
(1) (c) Amendment to Declaration of Trust dated September 16, 1996.
(6) Distribution Agreement
(8) Custody Agreement
(9) (a) Transfer Agency and Service Agreement
(9) (b) Participation Agreement for American Enterprise Life Insurance
Company
(9) (c) Participation Agreement for Connecticut General Life Insurance
Company and amendment dated August 30, 1996.
(9) (f) Fund Participation Agreement for CIGNA Life Insurance Company
dated September 5, 1996.
(10) Opinion and consent of counsel dated September 14, 1994.
(11) Consent of Independent Accountants
(13) Agreement relating to initial capital
(16) Schedule showing computation of performance quotations provided
in response to Item 22.
(17) Financial Data Schedules.
<PAGE>
DECLARATION OF TRUST
OF
THE QUEST FOR VALUE ASSET BUILDER TRUST
One World Financial Center, New York, NY 10281-1098
THE DECLARATION OF TRUST of QUEST FOR VALUE ASSET BUILDER TRUST is made
the 12th day of May, 1994 by the parties signatory hereto, as trustees (such
persons, so long as they shall continue in office in accordance with the terms
of this Declaration of Trust, and all other persons who at the time in question
have been duly elected or appointed as trustees in accordance with the
provisions of this Declaration of Trust and are then in office, being
hereinafter called the "Trustees".)
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund to manage and dispose
of the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
<PAGE>
ARTICLE I
Name and Definitions
1.1 Name. The name of the trust created hereby (the "Trust") shall be
"The Quest For Value Asset Builder Trust," and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever hereinafter
used) shall refer to the Trustees as trustees, and not individually, and shall
not refer to the officers, agents, employees or shareholders of the Trust.
However, should the Trustees determine that the use of such name is not
advisable, they may select such other name for the Trust as they deem proper and
the Trust may hold its property and conduct its activities under such other
name. Any name change shall become effective upon the execution by a majority of
the then Trustees of an instrument setting forth the new name. Any such
instrument shall have the status of an amendment to this Declaration.
1.2 Definitions. As used in this Declaration, the following terms shall
have the following meaning:
The "1940 Act" refers to the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, as amended from time to time.
The terms "Affiliated Person," "Assignment," "Commission," "Interested
Person" and "Principal Underwriter" shall have the meanings given them in the
1940 Act, as amended from time to time.
"Declaration" shall mean this Declaration of Trust as amended from time
to time. References in this Declaration to "Declaration," "hereof," "herein" and
"hereunder" shall be deemed to refer to the Declaration rather than the article
or section in which such words appear.
"Fundamental Policies" shall mean the investment objectives, policies
and restrictions set forth in the Prospectus or Statement of Additional
Information of the Trust and designated therein as policies or restrictions
which may be changed only upon a vote of Shareholders of the Trust.
"Majority Shareholder Vote" means the vote of the holders of: (i) a
majority of Shares represented in person or by proxy and entitled to vote at a
meeting of Shareholders at which a quorum, as determined in accordance with the
By-laws, is present and (ii) a majority of Shares issued and outstanding and
entitled to vote when action is taken by written consent of Shareholders. For
these purposes, however, the term "majority" shall mean a "majority of the
outstanding voting securities," as the phrase is defined in the 1940 Act, when
any action is required by the 1940 Act by such majority as so defined.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and government and agencies and political subdivisions
thereof.
2
<PAGE>
"Prospectus" and "Statement of Additional Information" shall mean the
currently effective Prospectus and Statement of Additional Information of the
Trust under the Securities Act of 1933, as amended.
"Series" means one of the separately managed components of the Trust as
set forth in Section 6.1 hereof or as may be established and designated from
time to time by the Trustees pursuant to that section.
"Shares" shall mean the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided from
time to time and includes fractions of Shares as well as whole shares.
"Shareholders" shall mean as of any particular time all holders of
record of outstanding Shares at such time.
"Trustees" shall mean the signatories to this Declaration of Trust, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who at the time in question have been duly elected or
appointed and have qualified as trustees in accordance with the provisions
hereof and are then in office, and reference in this Declaration of Trust to a
Trustee or Trustees shall refer to such person or persons in their capacity as
trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees.
3
<PAGE>
ARTICLE II
Trustees
2.1 Number of Trustees. The number of Trustees shall be such number as
shall be fixed from time to time by a written instrument signed by a majority of
the Trustees, provided, however, that the number of Trustees shall in no event
be less than three nor more than seven.
2.2 Election, Term. Each Trustee named herein, or elected or appointed
hereafter, shall (except in the event of resignation, removal or vacancy) hold
office until a successor has been elected or appointed and has qualified to
serve as Trustee. Trustees shall have terms of unlimited duration, subject to
the resignation and removal provisions of Section 2.3 hereof. Except as herein
provided and subject to Section 16(a) of the 1940 Act, Trustees need not be
elected by Shareholders, and the Trustees may elect and appoint their own
successors and may, pursuant to Section 2.4 hereof, appoint Trustees to fill
vacancies. The Trustees may adopt By-laws not inconsistent with this Declaration
or any provision of law to provide for election of Trustees by Shareholders at
such time or times as the Trustees shall determine to be necessary or advisable.
Except for the Trustees named herein, an individual may not commence to serve as
Trustee except if appointed pursuant to a written instrument signed by a
majority of the Trustees then in office or unless elected by Shareholders, and
any such election or appointment shall not become effective until the individual
appointed or elected shall have accepted such election or appointment and agreed
in writing to be bound by the terms of this Declaration of Trust. A Trustee
shall be an individual at least 21 years of age who is not under a legal
disability.
2.3 Resignation and Removal. Any Trustee may resign his trust (without
need for prior or subsequent accounting) by an instrument in writing signed by
him and delivered to the other Trustees and such resignation shall be effective
upon such delivery, or at a later date according to the terms of the instrument.
Any of the Trustees may be removed (provided the aggregate number of Trustees
after such removal shall not be less than the number required by Section 2.1
hereof) with cause, by action of two-thirds of the remaining Trustees or by the
action of the Shareholders of record of not less than two-thirds of the Shares
outstanding. For purposes of determining the circumstances and procedures under
which such removal by the Shareholders may take place, the provisions of Section
16(c) of the 1940 Act shall be applicable to the same extent as if the Trust
were subject to the provisions of that Section. Upon the resignation or removal
of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the incapacity or death of
any Trustee, his legal representative shall execute and deliver on his behalf
such documents as the remaining trustees shall require as provided in the
preceding sentence.
2.4 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal, of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. In the case of a vacancy caused by reason of
an increase in the number of Trustees, subject to
4
<PAGE>
the provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall
fill such vacancy by the appointment of such other person as they, in their
discretion, shall see fit. An appointment of a Trustee may be made in
anticipation of a vacancy to occur at a later date by reason of retirement,
resignation or increase in the number of Trustees. Whenever a vacancy in the
number of Trustees shall occur, until such vacancy is filled as provided in this
Section 2.4, the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the duties imposed
upon the Trustees by the Declaration. A written instrument certifying the
existence of such vacancy signed by a majority of the Trustees shall be
conclusive evidence of the existence of such vacancy.
2.5 Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary or any two
Trustees of the Trust. Regular meetings of the Trustees may be held without call
or notice at a time and place fixed by the By-laws or by resolution of the
Trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration of Trust or by applicable law, any action
of the Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consents of all
of the Trustees.
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the meaning of
Section 1.2 hereof or otherwise interested in any action to be taken may be
counted for quorum purposes under this Section and shall be entitled to vote to
the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications systems shall constitute presence in person at such meeting.
2.6 Officers. The Trustees shall annually elect a President, a
Secretary and a Treasurer and may elect a Chairman. The Trustees may elect or
appoint or authorize the Chairman, if any, or President to appoint such other
officers or agents with such power as the Trustees may deem to be advisable. The
Chairman and President shall be and the Secretary and Treasurer may, but need
not, be a Trustee.
5
<PAGE>
2.7 By-laws. The Trustees may adopt and from time to time amend or
repeal the By-laws for the conduct of the business of the Trust.
2.8 Delegation of Power to Other Trustees. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees; provided that in no case shall less than
two Trustees personally exercise the power granted to the Trustees under the
Declaration except as herein otherwise expressly provided.
6
<PAGE>
ARTICLE III
Powers of Trustees
3.1 General. The Trustees shall have exclusive and absolute control
over the Trust Property and over the business of the Trust to the same extent as
if the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. Such powers
of the Trustees may be exercised without order of or resort to any court.
3.2 Investments. The Trustees shall have power, subject to the
Fundamental Policies, to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of securities and
other investments and assets of whatever kind, or retain Trust
assets in cash and from time to time change the investments of
the assets of the Trust, and exercise any and all rights, powers
and privileges of ownership or interest in respect of any and all
such investments and assets of every kind and description,
including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more
persons, firms, associations or corporations to exercise any of
said rights, powers and privileges in respect of any of said
investments and assets.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3 Legal Title. Legal title to all Trust Property shall be vested in
the Trustees as joint tenants, except that the Trustees shall have power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name of any other
Person as nominee, on such terms as the Trustees may determine, provided that
the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each person who may hereafter become a Trustee. Upon
the resignation, removal or death of a Trustee he shall automatically cease to
have any right, title or interest in any of the Trust Property, and the right,
title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
3.4 Issuance and Repurchase of Securities. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal
7
<PAGE>
in, Shares, including shares in fractional denominations, and, subject to the
more detailed provisions set forth in Articles VIII and IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust whether capital or surplus or otherwise, to the
full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
3.5 Borrow Money; Lend Assets. Subject to the Fundamental Policies, the
Trustees shall have power to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise subjecting as security the
assets of the Trust, including the lending of portfolio securities, and to
endorse, guarantee or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust assets.
3.6 Delegation; Committees. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust and
the Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or names of the
Trustees or otherwise as the Trustees may deem expedient, to the same extent as
such delegation is permitted to directors of a Massachusetts business
corporation and is permitted by the 1940 Act.
3.7 Collection and Payment. The Trustees shall have power to collect
all property due to the Trust; and to pay all claims, including taxes, against
the Trust Property; to prosecute, defend, compromise or abandon any claims
relating to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
3.8 Expenses. The Trustees shall have power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration of Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal, underwriting, syndicating and brokerage services, as they in
good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.9 Miscellaneous Powers. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combination or associations; (c) remove
Trustees or fill vacancies in or add to their number, elect and remove such
officers and appoint and terminate such agents or employees as they consider
appropriate, and appoint from their own number, and terminate, any one or more
committees which may exercise some or all of the power and authority of the
Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust
Property, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, distributors, selected dealers or
independent contractors of the Trust against all claims arising by reason of
holding any such position or by reasons of any action taken or omitted by any
such Person in such capacity, whether or not constituting negligence, or whether
or not the Trust would have the power to indemnify
8
<PAGE>
such Person against such liability; (e) establish pension, profit-sharing, share
purchase and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (g) to the extent permitted by law, indemnify any Person
with whom the Trust has dealings, including the investment adviser, distributor,
transfer agent and selected dealers, to such extent as the Trustees shall
determine; (h) guarantee indebtedness or contractual obligations of others; (i)
determine and change the fiscal year of the Trust and the method in which its
account shall be kept; (j) adopt a seal for the Trust, but the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust; and (k) call for meetings of Shareholders as may be necessary or
appropriate.
3.10 Further Powers. The Trustees shall have power to conduct the
business of the trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States, in the District of Columbia, and in
any and all commonwealths, territories, dependencies, colonies, possessions,
agencies or instrumentalities of the United States of America and of foreign
governments, and to do all such other things and execute all such instruments as
they deem necessary, proper or desirable in order to promote the interests of
the Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with the Trust Property.
3.11 Principal Transactions. Except in transactions permitted by the
1940 Act or any rule or regulation thereunder, or any order or exemption issued
by the Commission, or effected to implement the provisions of any agreement to
which the Trust is a party, the Trustees shall not knowingly, on behalf of the
Trust, buy any securities (other than Shares) from or sell any securities (other
than Shares) to, or lend any assets of the Trust to, any Trustee or officer of
the Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, distributor or
transfer agent or with any Affiliated Person of such Person; but the Trust may
employ any such Person, or firm or company in which such Person is an Interested
Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
3.12 Litigation. The Trustees shall have the power to engage in and to
prosecute, defend, compromise, abandon, or adjust, by arbitration or otherwise,
any actions, suits, proceedings, disputes, claims and demands relating to the
Trust, and out of the assets of the Trust to pay or to satisfy any debts, claims
or expenses incurred in connection therewith, including those of litigation, and
such power shall include without limitation the power of the Trustees or any
appropriate committee thereof, in the exercise of their or its good faith
business judgment, to dismiss any action, suit, proceeding, dispute, claim or
demand, derivative or otherwise, brought by any person, including a Shareholder
in its own name or the name of the Trust, whether or not the Trust or any of the
Trustees may be named individually therein or the subject matter arises by
reason of business for or on behalf of the Trust.
9
<PAGE>
ARTICLE IV
Management and Distribution Arrangements
4.1 Management Arrangements. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into advisory, administration or management contracts whereby the other party to
such contract shall undertake to furnish such advisory, administrative,
management, accounting, legal, statistical and research facilities and services,
promotional or marketing activities, and such other facilities and services, if
any, as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration of Trust, the Trustees may
authorize any adviser, administrator or manager (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of portfolio securities of the trust on
behalf of the Trustees or may authorize any office, employee or Trustee to
effect such purchase, sales, loans or exchanges pursuant to recommendations of
any such adviser, administrator or manager (all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees. The Trustees may, in their sole
discretion, call a meeting of Shareholders in order to submit to a vote of
Shareholders at such meeting the approval or continuance of any such investment
advisory, management or other contract. If the Shareholders of any one or more
of the Series of the Trust should fail to approve any such investment advisory
or management contract, the Investment Adviser may nonetheless serve as
Investment Adviser with respect to any Series whose Shareholders approved such
contract.
4.2 Administrative Services. The Trustees may in their discretion from
time to time contract for administrative personnel and services whereby the
other party shall agree to provide to the Trustees or the Trust administrative
personnel and services to operate the Trust on a daily or other basis on such
terms and conditions as the Trustees may in their discretion determine. Such
services may be provided by one or more persons or entities.
4.3 Distribution Arrangements. The Trustees may in their discretion
from time to time enter into a contract, providing for the sale of the Shares of
the Trust to net the Trust not less than the par value per share, whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. Such contract may also
provide for the repurchase or sale of Shares by such other party as principal or
as agent of the Trust and may provide that such other party may enter into
selected dealer agreements with registered securities dealers to further the
purpose of the distribution or repurchase of the Shares. The contract shall be
on such terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article IV or the By-Laws.
4.4 Parties to Contract. Any contract of the character described in
Sections 4.1, 4.2 or 4.3 of this Article IV, or in Article VI or in Article VII
hereof, may be entered into with any corporation, firm, trust or association,
although one or more of the Trustees or officers of the Trust may be an officer,
director, Trustee, shareholder, employee or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such
10
<PAGE>
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws. The same person (including a firm, corporation, trust or
association) may be the other party to contracts entered into pursuant to
Sections 4.1, 4.2 or 4.3 above or Article VI or VII, and any individual may be
financially interested or otherwise affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.4.
4.5 Provisions and Amendments. Any contract entered into pursuant to
Sections 4.1, 4.2 or 4.3 of this Article IV shall be consistent with and subject
to all applicable requirements of the 1940 Act with respect to its adoption,
continuance, termination and the method of authorization and approval of such
contract or renewal thereof, and no amendment to any contract entered into
pursuant to such sections shall be effective unless entered into in accordance
with applicable provisions of the 1940 Act.
11
<PAGE>
ARTICLE V
Limitation of Liability of Shareholders,
Trustee and Others
5.1 No Personal Liability of Shareholders, Trustees, etc. No
Shareholder, as such, shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than the Trust
or its Shareholders, in connection with Trust Property or the affairs of the
Trust, and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee, officer, employee or agent, as such, of
the Trust, is made a party to any suit or proceeding to enforce any such
liability, he shall not on account thereof be held to any personal liability.
The Trust shall indemnify and hold each Shareholder harmless from and against
all claims and liabilities to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability; provided that Shareholders of a
particular Series who are subject to claims or liabilities solely by reason of
their status as Shareholders of that Series shall be limited to the assets of
that Series for recovery of any loss and related expenses. The rights accruing
to a Shareholder under this Section 5.1 shall not exclude any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
5.2 Non-Liability of Trustees, etc. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, its Shareholders or to any
Shareholder, Trustee, officer, employee or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
5.3 Indemnification. The Trustees shall provide for indemnification by
the Trust of any person who is, or has been a Trustee, officer, employee or
agent of the Trust against all liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved as a party or otherwise by virtue of his being or
having been a Trustee, officer, employee or agent and against amounts paid or
incurred by him in the settlement thereof, in such manner as the Trustees may
provide from time to time in the By-Laws.
The words "claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
5.4 No Bond Required of Trustees. No Trustee, as such, shall be
obligated to give any bond or surety or other security for the performance of
any of his duties hereunder.
12
<PAGE>
5.5 No Duty of Investigation; Notice in Trust, Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees under this Declaration of Trust or in their
capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees or by any officers,
employees or agents of the Trust, in their capacity as such, shall contain an
appropriate recital of the effect that the writing is executed or made by them
not individually, but as Trustees under the Declaration that the Shareholders,
Trustees, officer, employees and agents of the Trust shall not personally be
bound by or liable thereunder, nor shall resort be had to their private property
for the satisfaction of any obligation or claim thereunder but only to the Trust
Estate or, in the case of any such obligation which relates only to a specific
Series, only to the property of such Series, and appropriate references shall be
made therein to the Declaration of Trust, and may contain any further recital
which they may deem appropriate, but the omission of such recital shall not
operate to impose personal liability on any of the Trustees, Shareholders,
officers, employees or agents of the Trust. The Trustees may maintain insurance
for the protection of the Trust property, its Shareholders, officers, employees
and agents in such amount as the Trustees shall deem adequate to cover possible
tort liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
5.6 Reliance on Experts, etc. Each Trustee and officer or employee of
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any investment adviser, distributor, transfer
agent, selected dealers, accountants, appraisers or other experts or consultants
selected with reasonable care by the Trustees, officers or employees of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
13
<PAGE>
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable shares of beneficial interest, with par value
$.01 per share. The number of such shares of beneficial interest authorized
hereunder is unlimited. The Trustees may initially issue whole and fractional
shares of a single class, each of which shall represent an equal proportionate
share in the Trust with each other Share. As provided by the provisions of
Section 6.9 hereof, the Trustees may authorize the creation of series of shares
(the proceeds of which may be invested in separate, independently managed
portfolios) and additional classes of shares within any series. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and
nonassessable.
6.2 Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called upon
to share or assume any losses of the Trust or suffer any assessment of any kind
by virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in this Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights (except for rights of appraisal specified in Section 11.4 and as
the Trustees may determine with respect to any series or class of Shares).
6.3 Trust Only. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association, corporation
bailment of any form of legal relationship other than a trust. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
6.4 Issuance of Shares. The Trustees, in their discretion, may from
time to time without a vote of the Shareholders issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may deem best, any may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
6.5 Register of Shares. A register shall be kept at the Trust or a
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and
14
<PAGE>
addresses of the Shareholders and the number of Shares held by them respectively
and a record of all transfers thereof. Such register shall be conclusive as to
who are the holders of the Shares and who shall be entitled to receive dividends
or distributions or otherwise exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein provided, until he has
given his address to a transfer agent or such other officer or agent of the
Trustees as shall keep the said register for entry thereon. It is not required
that certificates be issued for the Shares; however, the Trustees, in their
discretion, may authorize the issuance of share certificates and promulgate
appropriate rules and regulations as to their use.
6.6 Transfer Agent and Registrar. The Trustee shall have power to
employ a transfer agent or transfer agents, and a registrar or registrars. The
transfer agent or transfer agents may keep the said register and record therein
the original issues and transfers, if any, of the said Shares. Any such transfer
agent and registrars shall perform the duties usually performed by the transfer
agents and registrars of certificates of stock in a corporation, except as
modified by the Trustees.
6.7 Transfer of Shares. Shares shall be transferable on the records of
the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affect by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or a transfer
agent of the Trust, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
6.8 Treasury Shares. Shares held in the treasury shall, until reissued,
not confer any voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to the Shares.
6.9 Series Designation. The Trustees, in their discretion, may
authorize the division of Shares into two or more series or two or more classes,
and the different series or classes shall be established and designated, and the
variations in the relative rights and preferences as between the different
series or classes shall be fixed and determined, by the Trustees, and each
additional series shall relate to a separate portfolio of investments; provided,
that all Shares shall be identical except that there may be variations so fixed
and determined between different series or classes as to investment objective,
purchase price, right or redemption, special and relative rights as to dividends
and on liquidation and conversion rights, and the several series or classes
shall have separate voting rights, as
15
<PAGE>
set forth in Section 10.1 of this Declaration. All references to shares in this
Declaration shall be deemed to be shares of any or all series and classes as the
context may require.
The first seven such Series are hereby established and designated:
The Equity Series
The Managed Series
The Small Cap Series
The Global Equity Series
The Bond Series
The U.S. Government Income Series
The Money Market Series
These seven Series shall be the only Series until additional Series are
established and designated by the Trustees.
The following provisions shall be applicable to all Series:
(a) The number of authorized Shares and the number of Shares of each
series or of each class that may be issued shall be unlimited.
The Trustees may classify or reclassify any unissued Shares or
any Shares previously issued and reacquired of any series or
class into one or more series or one or more classes that may be
established and designated from time to time. The Trustees may
hold as treasury shares (of the same or some other series or
class), reissue for such consideration and on such terms as they
may determine, or cancel any Shares of any series or any class
reacquired by the Trust at their discretion from time to time.
(b) The power of the Trustee to invest and reinvest the Trust
property of each Series that has been or that may be established
shall be governed by section 3.2 of this Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series or class, together with all assets
in which such consideration is invested or reinvested, all
income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange, or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall
irrevocably belong to that series or class for all purposes,
subject only to the rights of creditors and except as may
otherwise be required by applicable tax laws, and shall be so
recorded upon the books of account of the Trust. In the event
that there are any assets, income, earnings, profits and proceeds
thereof, funds, or payments which are not readily identifiable as
belonging to any particular series or class, the Trustees shall
allocate them among any one or more of the series or classes
established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all series or
classes for all purposes.
16
<PAGE>
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and
all expenses, costs, charges and reserves attributable to that
series. All expenses and liabilities incurred or arising in
connection with a particular Series, or in connection with the
management thereof, shall be payable solely out of the assets of
that Series and creditors of a particular Series shall be
entitled to look solely to the property of such Series for
satisfaction of their claims. Any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time
in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the holders of all
series for all purposes. The Trustees shall have full discretion,
to the extent not inconsistent with the 1940 Act, to determine
which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 9.2 of this Declaration. Dividends
and distributions on Shares of a particular series or class may
be paid with such frequency as the Trustees may determine, which
may be daily or otherwise, pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that series
or class, from such of the income and capital gains, accrued or
realized, from the assets belonging to that series or class, as
the Trustees may determine, after providing for actual and
accrued liabilities belonging to that series or class. All
dividends and distributions on Shares of a particular series or
class shall be distributed pro rata to the holders of that series
or class in proportion to the number of Shares of that series or
class held by such holders at the date and time of record
established for the payment of such dividends or distributions.
(f) Subject to the requirements of the 1940 Act, particularly Section
18(f) and Rule 18f-2 thereunder, the Trustees shall have the
power to determine the designations, preferences, privileges,
limitations and rights of each class and series of Shares.
(g) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that the holders of
Shares of any series or class shall have the right to convert or
exchange said Shares into Shares of one or more series of Shares
in accordance with such requirements and procedures as may be
established by the Trustees.
(h) The establishment and designation of any additional series or
class of Shares shall be effective upon the execution by a
majority of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such series or class, or as otherwise provided in
such instrument. At any time that there are no Shares outstanding
or any particular series or class previously established and
designated, the Trustees may by an instrument executed by a
majority of their number
17
<PAGE>
abolish that series or class and the establishment and
designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this
Declaration.
(i) In the event of the liquidation of a particular series, the
Shareholders of that series which has been established and
designated and which is being liquidated shall be entitled to
receive, when and as declared by the Trustees, the excess of the
assets belonging to that series over the liabilities belonging to
that series. The holders of Shares of any series shall not be
entitled hereby to any distribution upon liquidation of any other
series. The assets so distributable to the Shareholders of any
series shall be distributed among such Shareholders in proportion
to the number of Shares of that series held by them and recorded
on the books of the Trust. The liquidation of any particular
series in which there are Shares then outstanding may be
authorized by an instrument in writing, without a meeting, signed
by a majority of the Trustees then in office, subject to the
approval of a majority of the outstanding voting securities of
that series, as that phrase is defined in the 1940 Act.
6.10 Notices. Any and all notices to which any Shareholder hereunder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at his
last known address as recorded on the register of the Trust.
18
<PAGE>
ARTICLE VII
Custodian
7.1 Appointment and Duties. The Trustees shall at all times employ a
custodian or custodians, meeting the qualifications for custodians contained in
the 1940 Act, as custodian with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained in
the By-Laws of the Trust and the 1940 Act, for purposes of maintaining custody
of the Trust's securities and similar investments.
7.2 Central Depositary System. Subject to applicable rules, regulations
and orders, the Trustees may direct the custodian to acquire and hold securities
in the book-entry system for United States government securities or to deposit
or hold all or any part of the securities and similar investments owned by the
Trust in a system for the central handling of securities pursuant to which all
securities of any particular class or series of any issuer deposited or held
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities.
19
<PAGE>
ARTICLE VIII
Redemption
8.1 Redemptions. All outstanding shares may be redeemed at the option
of the holders thereof, upon and subject to the terms and conditions provided in
this Article VIII. The Trust shall, upon application of any Shareholder or
pursuant to authorization from any Shareholder, redeem or repurchase from such
Shareholder for cash or in kind outstanding Shares for an amount per share
determined by the application of a formula adopted for such purpose by
resolution of the Trustees (which formula shall be consistent with applicable
provisions of the 1940 Act); provided that (a) such amount per Share shall not
exceed the cash equivalent of the proportionate interest of each Share in the
assets of the Trust at the time of the purchase or redemption and (b) if so
authorized by the Trustees, the Trust may, at anytime and from time to time,
charge fees for effecting such redemption, at such rates as the Trustees may
establish, as and to the extent permitted under the 1940 Act, and may, at any
time and from time to time, pursuant to such Act or an order thereunder, suspend
such right of redemption. The procedures for effecting redemption shall be as
set forth in the Prospectus and the Statement of Additional Information, as
amended from time to time.
8.2 Redemption of Shares; Disclosure of Holding. If the Trustees shall,
at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or may become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption a number, or principal amount, of Shares or other securities of
the Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements of such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question would in
the opinion of the Trustees result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
8.3 Redemptions of Account of Less than $500. The Trustees shall have
the power to redeem shares at a redemption price determined in accordance with
Section 8.1 if at any time the total investment in a Shareholder account does
not have a value of at least $500 (or such lesser amount as the Trustees may
determine); provided, however, that the Trustees may not exercise such power
with respect to Shares if the Prospectus does not describe such power (and
applicable amount). In the event the Trustees determine to exercise their power
to redeem Shares provided in this Section 8.3., shareholders shall be notified
that the value of their account is less than $500 (or such lesser amount as
determined above) and allowed a reasonable period of time to make an additional
investment before the redemption is effected.
20
<PAGE>
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
9.1 Net Asset Value. The net asset value of each outstanding Share of
the Trust shall be determined in such manner and at such time or times on such
days as the Trustees may determine, in accordance with applicable provisions of
the 1940 Act, as described from time to time in the Trust's currently effective
Prospectus and Statement of Additional Information. The power and duty to make
the daily calculations may be delegated by the Trustees to the adviser,
administrator, manager, custodian, transfer agent or such other person as the
Trustees may determine. The Trustees may suspend the daily determination of net
asset value to the extent permitted by the 1940 Act.
9.2 Distributions to Shareholders. The Trustees shall from time to time
distribute ratably among the Shareholders such proportion of the net profits,
including net income, surplus (including paid-in surplus), capital or assets
held by the Trustees as they may deem proper. Such distribution shall be made in
cash or Shares, and the Trustees may distribute ratably among the Shareholders
additional Shares issuable hereunder in such manner, at such times, and on such
terms as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or to meet obligations of
the Trust, or as they may deem desirable to use in the conduct of its affairs or
to retain for future requirements or extensions of the business. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plan, cash
dividend payout plans or related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books of the Trust,
the above provisions shall be interpreted to give the Trustees the power in
their discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
21
<PAGE>
ARTICLE X
Shareholders Voting and Reports
10.1 Voting. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article II hereof, (ii) for the removal of
Trustees as provided in Section 2.3 hereof, (iii) with respect to any investment
advisory, management or other contract as provided in Section 4.1 hereof, (iv)
with respect to termination of the Trust as provided in Section 11.2 hereof, (v)
with respect to any amendment of the Declaration of the extent and as provided
in Section 11.3 hereof, (vi) with respect to any merger, consolidation or sale
of assets as provided in Section 11.4 hereof, (vii) with respect to
incorporation of the Trust to the extent and as provided in Section 11.5 hereof,
(viii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or Shareholders, provided that Shareholders of a Series are not
entitled to vote with respect to a matter which does not affect that Series, and
(ix) with respect to such additional matters relating to the Trust as may be
required by law, the Declaration, the By-Laws or any registration statement of
the Trust filed with any federal or state regulatory authority, or as and when
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that Shares held in the treasury of the Trust as of the record date, as
determined in accordance with the By-Laws, shall not be voted. A Majority
Shareholder Vote shall be sufficient to take or authorize action upon any matter
except as otherwise provided herein. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, the Declaration
or the By-Laws to be taken by Shareholders.
In the event of the establishment of series or classes as contemplated
by Section 6.9, Shareholders of each such series or class shall, with respect to
those matters upon which Shareholders are entitled to vote, be entitled to vote
only on matters affecting such series or class, and voting shall be by series or
class and require a Majority Shareholder Vote of each series or class that would
be affected by such matter, except that all Shares (regardless of series or
class) shall be voted as a single voting class, or a Majority Shareholder Vote
of each series or class shall be necessary, where required by applicable law.
Except as otherwise required by law, any action required or permitted to be
taken at any meeting of Shareholders may be taken without a meeting if
Shareholders constituting a Majority Shareholder Vote consent to the action in
writing and such consents are filed with the records of the Trust. Such consents
shall be treated for all purposes as votes taken at a meeting of Shareholders.
The By-Laws may include further provisions for Shareholders' votes and meetings
and related matters not inconsistent with the Declaration.
10.2. Reports. The Trustees shall transmit to Shareholders such written
financial reports of the operations of the Trust, including financial statements
certified by independent public accountants, as may be required under applicable
law.
22
<PAGE>
ARTICLE XI
Duration; Termination of Trust;
Amendment; Mergers, Etc.
11.1 Duration. Subject to possible termination in accordance with the
provisions of Section 11.2 hereof, the Trust created hereby shall continue
without limitation of time.
11.2 Termination of Trust.
(a) The Trust may be terminated (i) by a Majority Shareholder Vote at
any meeting of Shareholders, (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and
consented to by holders constituting a Majority Shareholder Vote
or (iii) by the Trustees by written notice to the Shareholders.
Upon the termination of the Trust,
(i) The Trust shall carry on no business except for the purpose
of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust
shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Trust Property
to one or more persons at public or private sale for
consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge
or pay its liabilities, and do all other acts appropriate
to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other
disposition of all or substantially all the Trust Property
shall require approval as set forth in Section 11.4.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities
and refunding agreements, as they deem necessary for their
protection, the Trustees may distribute the remaining Trust
Property, in cash or in kind or partly each, among
Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to Shareholders
as herein provided, a majority of the Trustees shall execute and
lodge among the record of the Trust an instrument in writing
setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and
duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
11.3 Amendment Procedure.
23
<PAGE>
(a) This Declaration may be amended by vote of the Shareholders. The
Trustees may also amend this Declaration without the vote or
consent of Shareholders to change the name of the Trust, to
supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary or desirable to conform this Declaration to the
requirements of applicable federal or state laws or regulations
or the requirements of the regulated investment company
provisions of the Internal Revenue Code, but the Trustees shall
not be liable for failing so to do.
(b) No amendment may be made, under Section 11.3(a) above, which
would change any rights with respect to any Shares of the Trust
by reducing the amount payable thereon upon liquidation of the
Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of affected
Shareholders. Nothing contained in this Declaration shall permit
the amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certification in recordable form signed by a majority of the
Trustees or by the Secretary or any Assistant Secretary of the
Trust, setting forth an amendment and reciting that it was duly
adopted by the Shareholders or by the Trustees as aforesaid or a
copy of the Declaration, as amended, in recordable form, and
executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the
Trust.
11.4 Merger, Consolidation and Sale of Assets. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of the Trust Property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized by a Majority Shareholder Vote, and any
such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of the
Commonwealth of Massachusetts. In respect of any such merger, consolidation,
sale or exchange of assets, any Shareholder shall be entitled to rights of
appraisal of his Shares to the same extent as a shareholder of a Massachusetts
business corporation in respect of a merger, consolidation, sale or exchange of
assets of a Massachusetts business corporation, and such rights shall be his
exclusive remedy in respect of his dissent from any such action.
11.5 Incorporation. Upon a Majority Shareholder Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for shares or securities thereof or
otherwise, and to lend money to, subscribe for shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire shares or any
other interest. The Trustees may also cause a merger or consolidation between
the Trust or any successor thereto and any such corporation, trust, partnership,
association or
24
<PAGE>
other organization if and to the extent permitted by law. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring a portion of the Trust Property to such organizations or entities.
25
<PAGE>
ARTICLE XIII
Miscellaneous
12.1 Filing. This Declaration and all amendments hereto shall be filed
in the office of the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required under the laws of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment of such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, containing the original Declaration and all
amendments theretofore made, may be executed from time to time by a majority of
the Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
12.2 Resident Agent. The Trust hereby appoints CT Corporation System as
its resident agent in the Commonwealth of Massachusetts, whose post office
address is 2 Oliver Street, Boston, Massachusetts 02109.
12.3 Governing Law. This Declaration is executed by the Trustees and
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
12.4 Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5 Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any person dealing with the
Trustees and their successors.
12.6 Provisions in Conflict With Law or Regulations.
26
<PAGE>
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with 1940 Act, the regulated
investment company provisions of the Internal Revenue Code or
with other applicable laws and regulation, the conflicting
provision shall be deemed never to have constituted a part of
this Declaration; provided, however, that such determination
shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provision in
any other jurisdiction or any other provision of this Declaration
in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
s/ Thomas W. Courtney s/ Joseph M. La Motta
- ---------------------------- ----------------------------
Thomas W. Courtney, Trustee Joseph M. La Motta, Trustee
s/ Lacy B. Herrmann s/ George Loft
- ---------------------------- ----------------------------
Lacy B. Herrmann, Trustee George Loft, Trustee
s/ Paul Y. Clinton
- ----------------------------
Paul Y. Clinton, Trustee
27
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this
12 date of May, 1994.
s\ Christopher P. Harvey
------------------------------
Christopher P. Harvey, Trustee
60 State Street
Boston, MA 02109
COMMONWEALTH OF MASSACHUSETTS
Suffolk, SS.
Boston, MA
May 12, 1994
Then personally appeared the above named Christopher P. Harvey who
acknowledged the foregoing instrument to be his free act and deed.
before me.
s\ Lynn P.
----------------------
Notary Public
My commission expires: 8/7/98
28
<PAGE>
AMENDMENT
TO
DECLARATION OF TRUST
OF
QUEST FOR VALUE ASSET BUILDER TRUST
This amendment to the Declaration of Trust of Quest for Value Asset
Builder Trust (the "Trust") dated May 12, 1994 (the "Declaration") is made this
1st day of September, 1994.
WHEREAS, Section 10.1 of the Declaration provides that until shares of
the Trust are issued the Trustees of the Trust may exercise all rights of
shareholders of the Trust and take any action required by law, the Declaration
or the By-Laws to be taken by shareholders;
WHEREAS, no shares of the Trust have been issued;
WHEREAS, the undersigned, being at least a majority of the Trustees of
the Trust, desire to amend the first sentence of the second paragraph of Section
10.1 of the Declaration as to voting by all shares as a single series or class.
NOW THEREFORE, the undersigned Trustees hereby declare that the
first sentence of the second paragraph of Section 10.1 of the Declaration be
amended by deleting said sentence in its entirety and inserting the following:
"In the event of the establishment of series of classes as
contemplated by Section 6.9, on each matter submitted to a vote
of Shareholders, all Shares of all series or classes shall vote
as a single class; provided, however, that (1) as to any matter
with respect to which a separate vote of any series or class is
required by the 1940 Act or is required by attributes applicable
to any series or class or is required by any other law, such
requirements as to a separate vote by that series or class shall
apply; (2) to the extent that a matter referred to in clause (1)
above affects more than one class or series and the interests of
each such class or series in the matter are identical, then,
subject to clause (3) below, the Shares of all such affected
classes or series shall vote as a single class; and (3) as to any
matter which does not affect the interests of a particularly
series or class, only the holders of Shares of the one or more
affected series or classes shall be entitled to vote."
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustees have caused this amendment
to be executed this 1st day of September 1994.
s\ Joseph La Motta s\ Lacy B. Herrmann
- ------------------------------- -----------------------------
Joseph LaMotta, as Trustee Lacy B. Herrmann, as Trustee
and not individually and not individually
RR 2 6 Whaling Road
Box 51 Darien, CT 06820
Pound Ridge, NY 10576-9780
s\ Paul Y. Clinton s\ George Loft
- ------------------------------- -----------------------------
Paul Y. Clinton, as Trustee George Loft, as Trustee and
and not individually not individually
946 Morris Avenue 51 Herrick Road
Byrn Mawr, PA 19010 Sharon, CT 06069
s\ Thomas W. Courtney
- -------------------------------
Thomas W. Courtney, as Trustee
and not individually
407 Timber Lane
Sewickley, PA 15143
<PAGE>
AMENDMENT
TO
DECLARATION OF TRUST
OF
THE QUEST FOR VALUE ASSET BUILDER TRUST
The undersigned, being a majority of the Trustees of The Quest for
Value Asset Builder Trust, a Massachusetts business trust (the "Trust"), acting
pursuant to Article I, Section 1.1 of the Declaration of Trust dated May 12,
1994, as amended (the "Declaration "), do hereby amend the Declaration to change
the name of the Trust from "The Quest for Value Asset Builder Trust" to "Quest
for Value Accumulation Trust" by deleting Section 1.1 of the Declaration in its
entirety and substituting the following:
1.1 Name. The name of the trust created hereby (the "Trust") shall be
"Quest for Value Accumulation Trust," and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word
"Trust" wherever hereinafter used) shall refer to the Trustees as
trustees, and not individually, and shall not refer to the officers,
agents, employees or shareholders of the Trust. However, should the
Trustees determine that the use of such name is not advisable, they may
select such other name for the Trust as they deem proper and the Trust
may hold its property and conduct its activities under such other name.
Any name change shall become effective upon the execution by a majority
of the then Trustees of an instrument setting forth the new name. Any
such instrument shall have the status of an amendment to this
Declaration.
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustees have caused this amendment
to be executed this 16th day of September, 1994.
s\ Thomas W. Courtney s\ Joseph M. LaMotta
- ------------------------------- -----------------------------
Thomas W. Courtney, as Trustee Joseph M. LaMotta, as Trustee
and not individually and not individually
833 Windemere Way R.R. 2, Box 51
Naples, FL 33989 Pound Ridge, NY 10576
s\ Lacy B. Herrmann s\ George Loft
- ------------------------------- -----------------------------
Lacy B. Herrmann, as Trustee George Loft, as Trustee
and not individually and not individually
6 Whaling Road 51 Herrick Road
Darien, CT 06820 Sharon, CT 06089
s\ Paul Y. Clinton
- -------------------------------
Paul Y. Clinton, as Trustee
and not individually
946 Morris Avenue
Bryn Mawr, PA 19010
<PAGE>
BY-LAWS
OF
QUEST FOR VALUE ASSET BUILDER TRUST
ARTICLE I
Definitions
The terms "Commission," "Declaration," "Majority Shareholder Vote,"
"1940 Act," "Shareholders," "Shares," "Trust Property" and "Trustees" have the
respective meanings given them in the Declaration of Trust of Quest for Value
Asset Builder Trust (the "Trust") dated May 12, 1994, as amended from time to
time.
ARTICLE II
Offices
2.1 Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.
2.2 Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
State of New York, and at such other places within and without the Commonwealth
as the Trustees may from time to time designate or the business of the Trust may
require.
<PAGE>
ARTICLE III
Shareholders' Meetings
3.1 Place of Meetings. Meetings of Shareholders shall be held at such
place, within or without the Commonwealth of Massachusetts, as may be designated
from time to time by the Trustees.
3.2 Meetings. Meetings of Shareholders of the Trust, as a whole or by
series or class, shall be held whenever called by a majority of the Trustees or
by the President of the Trust and as a whole whenever election of a Trustee or
Trustees by Shareholders is required by the provisions of Section 16 of the 1940
Act for that purpose. Meetings of Shareholders, as a whole or by series or
class, as the case may be, shall also be called by the Secretary upon the
written request, which request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat, of the holders of
Shares entitled to vote not less than twenty five percent (25%) of all the votes
entitled to be cast at such meeting, provided, however, that pursuant to Section
16(c) of the 1940 Act, that a meeting requested exclusively for the stated
purpose of removing a Trustee shall be called by the Secretary upon the written
request of the holders of Shares entitled to vote not less than ten percent
(10%) of all the votes entitled to be cast at such meeting as to the matter be
acted on thereat. The Secretary shall inform such Shareholders of the reasonable
estimated cost of preparing and mailing such notice of the meeting, and upon
payment to the Trust of such costs by such Shareholders, the Secretary shall
give notice stating the purpose or purposes of the meeting to all entitled to
vote at such meeting. Except as otherwise required by law, no meeting need be
called upon the request of the holders of Shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any meeting of
the same Shareholders held during the preceding twelve months.
3.3 Notice of Meetings; Waiver. Written or printed notice of every
Shareholders' meeting stating the place, date and purpose or purposes thereof,
shall be given by the Secretary not less than seven (7) nor more than sixty (60)
days before such meeting to each Shareholder entitled to vote at such meeting,
either by mail or by presenting it personally, or by leaving it at his/her
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Shareholder at his/her address as it appears on the records of the Trust.
Any such notice may be waived by any person or persons entitled to such notice,
by a notice signed by such person or persons and filed with the records of the
meeting, whether before or after the holding thereof, or by actual attendance at
the meeting, in person or by proxy, except where the Shareholder attends a
meeting for the express purpose of objecting to the transaction of business on
the grounds that the meeting has not been lawfully called or convened.
<PAGE>
3.4 Quorum and Adjournment of Meetings. Except as otherwise provided by
law, by the Declaration or by these By-Laws, at all meetings of Shareholders the
holders of a majority of the Shares issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall be requisite and shall
constitute a quorum for the transaction of business. Shares represented in
person or by proxy (i.e. shares which abstain or do not vote with respect to one
or more of the proposals presented for shareholder approval including "broker
non-votes") will be counted for purposes of determining whether a quorum is
present at the Meeting. Abstentions will be treated as shares that are present
and entitled to vote for purposes of determining the number of shares that are
present and entitled to vote with respect to any particular proposal, but will
not be counted as a vote in favor of such proposal. Accordingly, an abstention
from voting on a proposal has the same legal effect as a vote against the
proposal. "Broker non-votes" have the same legal effect as a vote against the
proposal. "Broker non-votes" exist where a proxy received from a broker
indicates that the broker does not have discretionary authority to vote the
shares on that matter. In the absence of a quorum, the Shareholders present or
represented by proxy and entitled to vote thereat shall have power to adjourn
the meeting from time to time. Any adjourned meeting may be held as adjourned
without further notice. At any adjourned meeting at which a quorum shall be
present, any business may be transacted as if the meeting had been held as
originally called.
3.5 Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his/her
duly authorized attorney-in-fact, for each Share of beneficial interest of the
Trust and for the fractional portion of one vote for each fractional Share
entitled to vote so registered in the Shareholder's name on the records of the
Trust on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after six months from
its date, unless otherwise provided in the proxy, and no proxy shall be valid as
to such a meeting, if executed after the final adjournment of such a meeting. At
all meetings of Shareholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or Officers of the Trust.
3.6 Vote Required. Except as otherwise provided by law, by Declaration
or by these By-Laws, at each meeting of Shareholders at which a quorum is
present, all matters shall be decided by Majority Shareholder Vote.
3.7 Inspectors of Election. In advance of any meeting of Shareholders,
the Trustees may appoint Inspectors of Election to act at the meeting or any
adjournment thereof. If Inspectors of Election are not so appointed, the
chairman of any meeting of Shareholders may, and on the request of any
Shareholder or his/her proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or
<PAGE>
at the meeting by the person acting as chairman. The Inspectors of Election
shall determine the number of Shares outstanding, the Shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results, and
do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting or of
any Shareholder or his/her proxy, the Inspectors of Election shall make a report
in writing of any challenge or question of matter determined by them and shall
execute a certificate of any facts found by them.
3.8 Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as are
granted to Shareholders under the Massachusetts Business Corporation Law.
3.9 Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to be
taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders. No such consent shall be valid for longer than six months from the
date of execution.
ARTICLE IV
Trustees
4.1 Meetings of the Trustees. The Trustees may in their discretion
provide for regular or special meetings of the Trustees to be held at such time
and place as shall be determined from time to time by the Trustees without
further notice.
4.2 Notice of Special Meetings. Written notice of special meetings of
the Trustees, stating the place, date and time thereof, shall be given to each
Trustee personally, by telegram, by mail or by leaving such notice at his/her
place of residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his/her address as it appears on the records of the
Trust.
4.3 Quorum and Adjournment of Meetings. If at any meeting of the
Trustees there is less than a quorum present, a quorum being, pursuant to the
Declaration, a majority of the Trustees, the Trustees present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is obtained.
<PAGE>
4.4 Vote of the Trustees. Unless provided otherwise in the Declaration
or by applicable law, any action of the Trustees shall be taken by vote of a
majority of the Trustees present (a quorom being present) or without a meeting,
by written consents of all of the Trustees.
4.5 Action by Trustees Without Meeting. All written consents of
Trustees evidencing action taken by the Trustees without a meeting shall set
forth such action, shall be signed by all of the Trustees entitled to vote upon
such action and shall be filed with the minutes of proceedings of the Trustees.
4.6 Expenses and Fees. Each Trustee may be allowed expenses, if any,
for attendance at each regular or special meeting of the Trustees, and each
Trustee shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
ARTICLE V
Indemnification
5.1 Indemnification of Trustees, Officers, Employees and Agents.
(a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Trust or any of its shareholders) by reason of
the fact that such person is or was a Trustee, officer, employee
or agent of the Trust. The indemnification shall be against
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by such
person in connection with the action, suit or proceeding, if
he/she acted in good faith and in a manner he/she reasonably
believed to be in or not opposed to the best interests of the
Trust, and, with respect to any criminal action or proceedings,
had no reasonable cause to believe his/her conduct was unlawful.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere
or its equivalent, shall not, ---- ---------- of itself, create a
presumption that the person did not act in good faith and in a
manner which he/she reasonably believed to be in or not opposed
to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his/her conduct was unlawful.
<PAGE>
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or on behalf of the Trust or any of
its shareholders to obtain a judgment or decree in its favor by
reason of the fact that he/she is or was a Trustee, officer,
employee or agent of the Trust. The indemnification shall be
against expenses, including attorneys' fees, actually and
reasonably incurred by him/her in connection with the defense or
settlement of the action or suit, if he/she acted in good faith
and in a manner he/she reasonably believed to be in or not
opposed to the best interests of the Trust; except that such
indemnification shall preclude payment upon any liability,
whether or not there is an adjudication of liability, arising by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties as described in Sections 17(h) and
(i) of the 1940 Act.
(c) To the extent that a Trustee, officer, employee or agent of the
Trust has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a)
or (b) or in defense of any claim, issue or matter therein,
he/she shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the
Trust only as authorized in the specific case after a
determination that indemnification of the Trustee, officer,
employee or agent is proper in the circumstances because
he/she has met the applicable standard of conduct set forth
in subsections (a) or (b).
(2) The determination shall be made:
(i) by the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the
action, suit or proceeding; or
(ii) if the required quorum is not obtainable, or if a
quorum of disinterested Trustees so directs, by
independent legal counsel in a written opinion; or
(iii) by the Shareholders.
(3) Notwithstanding the provisions of this Section 5.1, no
person shall be entitled to indemnification for any
liability, whether or not there is an adjudication of
liability, arising by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties as
described in Sections
<PAGE>
17(h) and (i) of the 1940 Act ("Disabling Conduct"). A
person shall be deemed not liable by reason of Disabling
Conduct if, either:
(i) a final decision on the merits is made by a court or
other body before whom the proceeding was brought
that the person to be indemnified ("Indemnitee") was
not liable by reason of Disabling Conduct; or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review or the facts, that
the Indemnitee was not liable by reason of Disabling
Conduct, is made by either -
(A) a majority of a quorum of Trustees who are
neither "interested persons" of the Trust, as
defined in Section 2(a)(19) of the 1940 Act, nor
parties to the action, suit or proceeding; or
(B) an independent legal counsel in a written
opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee,
officer, employee or agent of the Trust in defending a civil or
criminal action, suit or proceeding may be paid by the Trust in
advance of the final disposition thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay
the advance if it is not ultimately determined that such
person is entitled to be indemnified by the Trust; and
(3) either,
(i) such person provides a security for his/her
undertaking; or
(ii) the Trust is insured against losses by reason of any
lawful advances; or
(iii) a determination, based on a review of readily
available facts, that there is reason to believe that
such person ultimately will be found entitled to
indemnification, is made by either -
(A) A majority of a quorum which consists of
Trustees who are neither "interested persons" of
the Trust, as defined in
<PAGE>
Section 2(a)(19) of the 1940 Act, nor parties to
the action, suit or proceeding; or
(B) an independent legal counsel in a written
opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled
under any by-law, agreement, vote of Shareholders or
disinterested Trustees or otherwise, both as to action in an
official capacity and as to action in another capacity while
holding office, and shall continue as to a person who has ceased
to be a Trustee, officer, employee or agent and inure to the
benefit of the heirs, executors and administrators of such
person; provided that no person may satisfy any right of
indemnity or reimbursement granted herein or to which he/she may
be otherwise entitled except out of the property of the Trust,
and no Shareholder, as such, shall be personally liable with
respect to any claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any
person who is or was a Trustee, officer, employee or agent of the
Trust, against any liability asserted against him/her and
incurred by him/her in any such capacity, or arising out of
his/her status as such. However, in no event will the Trust pay
that portion of insurance premiums, if any, attributable to
coverage which would indemnify any officer or Trustee against
liability for Disabling Conduct.
(h) Nothing in this Section shall be construed to protect any Trustee
or officer of the Trust against any liability to the Trust or to
its security holders to which he/she would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his/her office.
ARTICLE VI
Committees
6.1 Executive and Other Committees. The Trustees, by resolution adopted
by a majority of the Trustees, may designate an Executive Committee and/or other
committees, each committee to consist of two (2) or more of the Trustees of the
Trust and may delegate to such committees, in the intervals between meetings of
the Trustees, any or all of the powers of the Trustees in the management of the
business and affairs of the Trust, except those powers which by law, the
Declaration or these By-Laws they are prohibited from delegating. In the absence
of any member of any such committee, the members thereof present at any meeting,
whether or not they
<PAGE>
constitute a quorum, may appoint a Trustee to act in place of such absent
member. The Executive Committee and any other committee shall fix its own rules
or procedure. Each such committee shall keep a record of its proceedings. All
actions of the Executive Committee shall be reported to the Trustees at the
meeting thereof next succeeding to the taking of such action.
6.2 Advisory Committee. The Trustees may appoint an advisory committee
which shall be composed of persons who do not serve the Trust in any other
capacity and which shall have advisory functions with respect to the investments
of the Trust but which shall have no power to determine that any security or
other investment shall be purchased, sold or otherwise disposed of by the Trust.
The number of persons constituting any such advisory committee shall be
determined from time to time by the Trustees. The members of any such advisory
committee may receive compensation for their services and may be allowed such
fees and expenses for the attendance at meetings as the Trustees may from time
to time determine to be appropriate.
6.3 Committee Action Without Meeting. All written consents of the
committee members evidencing action taken by such committee without a meeting
shall set forth such action, shall be signed by the required number of committee
members and shall be filed with the records of the proceedings of such
committee.
ARTICLE VII
Officers
7.1 Executive Officers. In addition to the officers required or
permitted by the Declaration, the Trustees may also elect one or more Vice
Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to appoint,
such other officers and agents as the Trustees shall at any time or from time to
time deem advisable. Two or more offices, except those of President and Vice
President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. The executive
officers of the Trust shall be elected annually by the Trustees and each
executive officer so elected shall hold office until a successor is elected and
is qualified.
7.2 Execution of Instruments and Documents and Signing of Checks and
Other Obligations and Transfers. All instruments, documents and other papers
shall be executed in the name and on behalf of the Trust and all checks, notes,
drafts and other obligations for the payment of money by the Trust shall be
signed, and all transfers of securities standing in the name of the Trust shall
be executed, by the President, any Vice President or the Treasurer, or by any
one or more officers or agents of the Trust as may be designated by vote of the
Trustees.
<PAGE>
7.3 Term and Removal and Vacancies. Each Officer of the Trust shall
hold office until a successor is elected and is qualified. Any officer or agent
of the Trust may be removed by the Trustees whenever, in their judgment, the
best interests of the Trust will be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
7.4 Compensation of Officers. The compensation of officers and agents
of the Trust shall be fixed by the Trustees, or by the President to the extent
provided by the Trustees with respect to officers appointed by the President.
7.5 Power and Duties. All officers and agents of the Trust, as between
themselves and the Trust, shall have such authority and perform such duties in
the management of the Trust as may be provided in or pursuant to these By-Laws,
or to the extent not so provided, as may be prescribed by the Trustees;
provided, that no rights of any third party shall be affected or impaired by any
such By-Laws or resolution of the Trustees unless he/she has knowledge thereof.
7.6 The Chairman. The Chairman, if any, or in his/her absence the
President, shall preside at all meetings of the Shareholders and of the
Trustees, shall be a signatory on all Annual and Semi-Annual Reports as may be
sent to Shareholders, and he/she shall perform such other duties as the Trustees
may from time to time prescribe.
7.7 The President. The President shall be the chief executive officer
of the Trust, he/she shall have general and active management of the business of
the Trust, shall see that all orders and resolutions of the Trustees are carried
into effect, and, in connection therewith, shall be authorized to delegate to
one or more Vice Presidents such of his/her powers and duties at such times and
in such manner as he/she may deem advisable. Subject to the control of the
Trustees and to the control of any committees of the Trustees, within their
respective spheres, as provided by the Trustees, the President shall at all
times exercise a general supervision and direction over the affairs of the
Trust. He/she shall have the power to employ attorneys and counsel for the Trust
and to employ such subordinate officers, agents, clerks and employees as may
find necessary to transact the business of the Trust. He/she shall also have the
power to grant, issue, execute or sign such powers of attorney, proxies or other
documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The President shall have such other powers and duties,
as from time to time may be conferred upon or assigned to him/her by the
Trustees.
7.8 The Vice Presidents. The Vice Presidents shall be of such number
and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice Presidents
in the order of their seniority as may be determined from time to time by the
Trustees or the President, shall, in the absence or disability of the President,
<PAGE>
exercise the powers and perform the duties of the President; and shall perform
such other duties as the Trustees or the President may from time to time
prescribe.
7.9 The Assistant Vice Presidents. The Assistant Vice President, or, if
there be more than one, the Assistant Vice Presidents, shall perform such duties
and have such powers as may be assigned them from time to time by the Trustees
or the President.
7.10 The Secretary. The Secretary shall attend all meetings of the
Trustees and all meetings of the Shareholders and record all the proceedings of
the meetings of the Shareholders and of the Trustees in a book to be kept for
that purpose, and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the Shareholders and special meetings of the Trustees, and shall perform such
other duties and have such powers as the Trustees, or the President, may from
time to time prescribe. He/she shall keep in safe custody the seal of the Trust
and affix or cause the same to be affixed to any instrument requiring it, and,
when so affixed, it shall be attested by his/her signature or by the signature
of an Assistant Secretary.
7.11 The Assistant Secretaries. The Assistant Secretary, or if there
shall be more than one, the Assistant Secretaries, in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Trustees, or the
President, may from time to time prescribe.
7.12 The Treasurer. The Treasurer shall be the chief financial officer
of the Trust and shall keep or cause to be kept full and accurate accounts or
receipts and disbursements in books belonging to the Trust, and shall render to
the Trustees and the President whenever any of them require it, an account of
his/her transactions as Treasurer and of the financial condition of the Trust;
and shall perform such other duties as the Trustees, or the President, may from
time to time prescribe.
7.13 The Assistant Treasurers. The Assistant Treasurer, or, if there
shall be more than one, the Assistant Treasurers in the order determined by the
Trustees or the President, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Trustee, or the President,
may from time to time prescribe.
<PAGE>
ARTICLE VIII
Custodian
The custodian of the Trust shall be appointed, among other things:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. In addition the custodian may be authorized to keep the books
and accounts of the Trust, furnish clerical and accounting services and compute
the net income and the net asset value of the Trust and its shares. If so
directed by a Majority Shareholder Vote, the custodian shall deliver and pay
over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees.
<PAGE>
ARTICLE IX
Miscellaneous
9.1 Location of Books and Records. The books and records of the Trust
may be kept outside the Commonwealth of Massachusetts at such place or places as
the Trustees may from time to time determine, except as otherwise required by
law.
9.2 Record Date. The Trustees may fix in advance a date as the record
date for the purpose of determining Shareholders entitled to notice of, or to
vote at, any meeting of Shareholders, or Shareholders entitled to receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. Such date, in any
case shall be not more than sixty (60) days, and in case of a meeting of
Shareholders not less than ten (10) days prior to the date on which particular
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date, the Trustees may provide that the transfer books shall be
closed for a stated period but not to exceed, in any case, twenty (20) days. If
the transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting.
9.3 Seal. The Trustees shall adopt a seal, which shall be in such form
and shall have such inscription thereon as the Trustees may from time to time
provide. The seal of the Trust may be affixed to any document, and the seal and
its attestation may be lithographed, engraved or otherwise printed on any
document with the same force and effect as if it had been imprinted and attested
manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
9.4 Fiscal Year. The fiscal year of the Trust shall end on such date as
the Trustees may by resolution specify, and the Trustees may by resolution
change such date for future fiscal years at any time and from time to time.
9.5 Orders for Payment of Money. All orders or instructions for the
payment of money of the Trust, and all notes or other evidences of indebtedness
issued in the name of the Trust, shall be signed by such officer or officers or
such other person or persons as the Trustees may from time to time designate, or
as may be specified in or pursuant to the agreement between the Trust and the
bank or trust company appointed as Custodian of the securities and funds of the
Trust.
<PAGE>
ARTICLE X
Compliance with Federal and State Regulations
The Trustees are hereby empowered to take such action as they may deem
to be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XI
Amendments
These By-Laws may be amended, altered, or repealed, or new By-Laws may
be adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees. No such
amendment, adoption or repeal may be made by vote of the Trustees if, pursuant
to law, the Declaration or these By-Laws, a vote of the Shareholders is required
for such amendment, adoption or repeal. The Trustees shall in no event adopt
By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provision in the
Declaration.
ARTICLE XII
Declaration of Trust
The Declaration establishing Quest for Value Asset Builder Trust, a
copy of which, together with all amendments thereto, is on file in the office of
the Secretary of the Commonwealth of Massachusetts, provides that the name Quest
for Value Asset Builder Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
Shareholder, officer, employee or agent of Quest for Value Asset Builder Trust
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise,
in connection with the affairs of said Quest for Value Asset Builder Trust, but
the Trust Property only shall be liable.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 16th day of September, 1994, and amended this
1st day of May, 1996, by and between OCC ACCUMULATION TRUST (formerly called
Quest for Value Accumulation Trust and before that, Quest for Value Asset
Builder Trust), a Massachusetts business trust (the "Fund") and OPCAP
ADVISORS (formerly called Quest for Value Advisors), a Delaware general
partnership (the "Manager").
WHEREAS, the Fund is an open-end, diversified, management investment
company, organized in "series" form and comprised of seven separate investment
portfolios (the "Portfolios" or the "Series") and is registered with the
Securities and Exchange Commission (the "Commission") pursuant to the Investment
Company Act of 1940 (the "1940 Act");
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Fund and the Manager agree as follows:
1. General Provisions
The Fund hereby employs the Manager and the Manager hereby undertakes to
act as the investment adviser of the Fund in connection with and for the benefit
of each Portfolio, including any Portfolio hereafter created, and to perform for
the Fund and for each of the Portfolios such other duties and functions in
connection with each Portfolio for the period and on such terms as set forth in
this Agreement. The Manager shall, in all matters, give to the Fund and its
Board of Trustees (the "Trustees") the benefit of its best judgment, effort,
advice and recommendations and shall at all times conform to, and use its best
efforts to enable the Fund to conform to:
(a) the provisions of the 1940 Act and any rules or regulations thereunder;
(b) any other applicable provisions of state or federal law;
(c) the provisions of the Declaration of Trust and By-Laws of the Fund as
amended from time to time;
(d) the policies and determinations of the Trustees;
(e) the investment objectives and policies and investment restrictions of
each Portfolio as reflected in the registration statement of the Fund under
the 1940 Act or as such objectives, policies and restrictions may from time
to time be amended; and
(f) the prospectus, if any, of the Fund in effect from time to time.
The appropriate officers and employees of the Manager shall be available upon
reasonable notice for consultation with any of the Trustees or officers with
respect to any matters dealing with the Fund's business affairs, including the
valuation of any securities held by the Fund for the benefit of any Portfolio
that are either not registered for public sale or not being traded on any
securities market.
<PAGE>
2. Investment Management
(a) The Manager shall, subject to the direction and control by the
Trustees, separately with respect to each Portfolio: (i) regularly provide
investment advice and recommendations to the Fund with respect to it's
investments, investment policies, and the purchase and sale of securities
and commodities; (ii) supervise continuously and determine the securities
and commodities to be purchased or sold by the Fund and the portion, if
any, of the Fund's assets to be held uninvested; and (iii) arrange, subject
to the provisions of Section 6 hereof, for the purchase and sale of
securities, commodities and other investments by the Fund.
(b) The Manager may obtain investment information, research or assistance
from any other person, firm or corporation to supplement, update or
otherwise improve its investment management services, including entering
into sub-advisory agreements with other affiliated or unaffiliated
registered investment advisers in order to obtain specialized services;
provided, however, that the Fund shall not be required to pay any
compensation other than as provided by the terms of this Agreement and
subject to the provisions of Section 5 hereof.
(c) So long as the Manager shall have acted with due care and in good
faith, the Manager shall not be liable to the Fund or its shareholders for
any error in judgment, mistake of law, or any other act or omission in the
course of or connected with, rendering services hereunder, including
without limitation, any losses which may be sustained by the Fund or its
shareholders as a result of the purchase, holding, redemption, or sale of
any security by the Fund irrespective of whether the determinations of the
Manager relative thereto shall have been based, in whole or in part, upon
the investigation, research or recommendation of any other individual, firm
or corporation believed by the Manager to be reliable. Nothing herein
contained shall, however, be construed to protect the Manager against any
liability to the Fund or its shareholders arising out of the Manager's
willful misfeasance, bad faith, or gross negligence in the performance of
its duties or reckless disregard of its obligations and duties under this
Agreement.
(d) Nothing in this Agreement shall prevent the Manager, any parent,
subsidiary or affiliate, or any director or officer thereof, from acting as
investment adviser for any other person, firm, or corporation, and shall
not in any way limit or restrict the Manager or any of its directors,
officers, stockholders or employees from buying, selling or trading any
securities or commodities for its or their own account or for the account
of others for whom it or they may be acting, if such activities will not
adversely affect or otherwise impair the performance by the Manager of its
duties and obligations under this Agreement.
<PAGE>
3. Other Duties of the Manager
The Manager shall, at its own expense, provide and supervise the activities
of all administrative and clerical personnel and shall be required to provide
effective corporate administration for the Fund, including (1) coordination of
the functions of accountants, counsel and other parties performing services for
the Fund, (2) the preparation and filing of such reports related to the Fund or
to any Portfolio as shall be required by federal securities laws and various
state "blue sky" laws, (3) composition of periodic reports with respect to its
operations for shareholders of the Fund and (4) composition of proxy materials
for meetings of the Fund's shareholders.
4. Allocation of Expenses
The Manager will bear all costs and expenses of its employees and overhead
incurred by it in connection with its duties hereunder except as noted in
Section 5 below. All other expenses (other than those to be paid by the Fund's
distributor under a distribution agreement), shall be paid by the Fund,
including, but not limited to:
(a) interest expense, taxes and governmental fees;
(b) brokerage commissions and other expenses incurred in acquiring or
disposing of the Fund's securities and commodities holdings;
(c) insurance premiums for fidelity and other coverage requisite to the
Fund's operations;
(d) fees of the Trustees other than those who are interested persons of the
Fund and out-of-pocket travel expenses for all Trustees and other expenses
incurred by the Fund in connection with Trustees' meetings;
(e) outside legal, accounting and audit expenses;
(f) custodian, dividend disbursing, and transfer agent fees and expenses;
(g) expenses in connection with the issuance, offering, sale or
underwriting of securities issued by the Fund, including preparation of
stock certificates;
(h) fees and expenses, other than as hereinabove provided, incident to the
registration or qualification of the Fund's shares for sale with the
Commission and in various states and foreign jurisdictions;
(i) expenses of printing and mailing reports and notices and proxy material
to the Fund's shareholders;
<PAGE>
(j) all other expenses incidental to holding meetings of the Fund's
shareholders;
(k) expenses of organizing the Fund; and
(l) such extraordinary non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligation the Fund may have to
indemnify its officers and Trustees with respect thereto.
Notwithstanding the foregoing, the Manager shall pay all salaries and fees
of each of the Fund's officers and Trustees who are interested persons of the
Manager.
5. Compensation of the Manager
(a) The Fund agrees to pay the Manager, and the Manager agrees to accept as
full compensation for the performance of all its functions and duties to be
performed hereunder, a fee based on the total net assets of each Portfolio
at the end of each business day. Determination of net asset value of each
Portfolio will be made in accordance with the policies disclosed in the
Fund's registration statement under the 1940 Act. The fee is payable at the
close of business on the last day of each calendar month and shall be made
on the first business day following such last calendar day. The payment due
on such day shall be computed by (1) adding together the results of
multiplying (i) the total net assets of each Portfolio on each day of the
month by (ii) the applicable daily fraction of the annual advisory fee
percentage rate for such Portfolio as set forth on Schedule A hereto and
then (2) adding together the total monthly amounts computed for each
Portfolio.
(b) In the event the operating expenses of the Fund, including any amounts
payable to the Manager pursuant to subsection (a) hereof, but excluding the
amount of any interest, taxes, brokerage commissions, distribution fees,
and extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto)
paid or payable by the Fund for any fiscal year ending on a date during
which this Agreement is in effect, exceed the most restrictive state law
provisions in effect in states where the Fund is qualified to be sold, the
Manager will pay or refund to the Fund any such excess amount. In
addition, the Manager shall waive any amounts payable to the Manager
pursuant to subsection (a) hereof, and reimburse the Fund such that total
operating expenses of each of the Portfolios of the Fund do not exceed
1.25% of their respective average daily net assets. Whenever the expenses
of a Portfolio exceed a pro rata portion of the expense limitation
stated above, the monthly amount payable to the Manager will be reduced or
postponed in the amount of such excess.
6. Portfolio Transactions and Brokerage
<PAGE>
(a) The Manager is authorized, in arranging the purchase and sale of the
Fund's portfolio securities, to employ or deal with such members of
securities exchanges and brokers or dealers, including Oppenheimer & Co.,
Inc. ("Opco") ("broker/dealer"), as may, in the Manager's best judgment
based on all relevant factors, implement the policy of the Fund to obtain,
at reasonable expense, the "best execution" (prompt and reliable execution
of the Fund's securities transactions at the most favorable security prices
obtainable of the Fund's securities transactions) as well as to obtain,
consistent with the provisions of subparagraph (c) of this Section 6, the
benefit of such investment information or research as will be of
significant assistance to the Manager in the performance of its functions
and duties under this Agreement.
(b) The Manager shall select broker/dealers to effect the Fund's securities
transactions on the basis of its estimate of the ability of such
broker/dealers to obtain best execution of particular and related
securities transactions. The ability of a broker/dealer to obtain best
execution of particular securities transaction(s) will be judged by the
Manager on the basis of all relevant factors and considerations, including,
insofar as feasible, the execution capabilities required by the
transactions; the ability and willingness of the broker/dealer to
facilitate the Fund's securities transactions by participating therein for
its own account; the importance to the Fund of speed, efficiency or
confidentiality; the broker/dealer's apparent familiarity with sources from
or to whom particular securities might be purchased or sold; and any other
matters relevant to the selection of a broker/dealer for particular and
related transactions of the Fund.
(c) The Manager shall have discretion, in the interests of the Fund, to
allocate brokerage on the Fund's securities transactions to broker/dealers
qualified to provide best execution of such transactions who provide
brokerage and/or research services (as such services are defined in Section
28(e)(3) of the Securities Exchange Act of 1934 (the "1934 Act") for the
Fund and/or other accounts for which the Manager exercises investment
discretion (as that term is defined in Section 3(a)(35) of the 1934 Act)
and to cause the Fund to pay such broker/dealers (other than Opco) a
commission for effecting a securities transaction for the Fund that is in
excess of the amount of commission another broker/dealer adequately
qualified to effect such transaction would have charged for effecting that
transaction, if the Manager determines, in good faith, that such commission
is reasonable in relation to the value of the brokerage and/or research
services provided by such broker/dealer, viewed in terms of either that
particular transaction or the Manager's overall responsibilities with
respect to the accounts as to which it exercises investment discretion. In
reaching such determination, the Manager will not be required to place or
attempt to place a specific dollar value on the brokerage and/or research
services provided by such broker/dealer. In demonstrating that such
determinations were made in good faith, the Manager shall be prepared to
show that all commissions were allocated to such broker/dealers for
purposes contemplated by this Agreement and that the total commissions paid
by the Fund
<PAGE>
over a representative period selected by the Trustees were reasonable in
relation to the benefits received by the Fund. Such research information
may be in written form or through direct contact with individuals, and may
include information on particular companies and industries as well as
market, economic or institutional activity areas.
(d) The Manager shall have no duty or obligation to seek advance
competitive bidding for the most favorable commission rate applicable to
any particular securities transactions or to select any broker/dealer on
the basis of its purported or "posted" commission rate, although it will,
to the best of its ability, endeavor to be aware of the current level of
the charges of eligible broker/dealers and to minimize the expense incurred
by the Fund for effecting its securities transactions to the extent
consistent with the interests and policies of the Fund as established by
the determinations of the Trustees and the provisions of this Section 6.
(e) The Fund recognizes and intends that, subject to the foregoing
provisions of this Section 6, Opco will act as its regular broker so long
as it is lawful for it so to act and that Opco may be a major recipient of
brokerage commissions paid by the Fund. Opco may effect securities
transactions for the Fund only if (1) the commissions, fees or other
remuneration received or to be received by it are reasonable and fair
compared to the commissions, fees or other remuneration received by other
brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a
comparable period of time and (2) the Trustees, including a majority of
those Trustees who are not interested persons, have adopted procedures
pursuant to Rule 17e-1 under the 1940 Act for determining the permissible
level of such commissions.
(f) Sales of shares of the Fund and/or shares of the other investment
companies managed by the Manager or distributed by the Fund's distributor
may, subject to applicable rules covering the distributor's activities in
this area, also be considered as a factor in the direction of securities
transactions to dealers, but only in conformity with the price, execution
and other considerations and practices discussed above. Those other
investment companies may also give similar consideration relating to the
sale of the Fund's shares. The Fund will not purchase any securities from
or sell any securities to Opco acting as principal for its own account.
(g) When orders to purchase or sell the same security on identical terms
are placed by more than one of the funds and/or other advisory accounts
managed by the Manager or its affiliates, the transactions are generally
executed as received, although a fund or advisory account that does not
direct trades to a specific broker ("free trades") usually will have its
order executed first. Purchases are combined where possible for the purpose
of negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a particular
transaction as
<PAGE>
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.
7. Duration
This Agreement will become effective as of the date hereof. This Agreement
will continue in effect for two years from the date hereof and thereafter
(unless sooner terminated in accordance with this agreement) for successive
periods of twelve months so long as each continuance shall be specifically
approved at least annually with respect to each Portfolio by (1) the vote of a
majority of those Trustees who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (2) a majority of the Trustees or of a majority of
the outstanding voting securities of the respective Portfolios of the Fund.
8. Termination
This Agreement may be terminated (i) by the Manager at any time, without
payment of any penalty upon giving the Fund ninety (90) days' written notice
(which notice may be waived by the Fund); or (ii) by the Fund at any time,
without payment of any penalty upon sixty (60) days' written notice to the
Manager (which notice may be waived by the Manager), provided that such
termination by the Fund shall be directed or approved by the vote of the
majority of all of the Trustees or by the vote of a majority of the outstanding
voting securities of the Portfolios of the Fund with respect to which notice of
termination has been given to the Manager.
9. Amendment or Assignment
This Agreement may be amended with respect to a Portfolio only if such
amendment is specifically approved by (i) the vote of the outstanding voting
securities of such Portfolio and (ii) a majority of the Trustees, including a
majority of those Trustees who are not parties to this Agreement or interested
persons of such party, cast in person at a meeting called for the purpose of
voting on such approval, provided that this Agreement may be amended to add a
new Portfolio or delete an existing Portfolio without a vote of the of
shareholders of any other Portfolio covered by this Agreement. This Agreement
shall automatically and immediately terminate in the event of its assignment, as
that term is defined in the 1940 Act and the rules thereunder.
10. Governing Law
This Agreement shall be interpreted in accordance with the laws of the
State of New York and the applicable provisions of the 1940 Act, other
securities laws and rules thereunder. To the extent that the applicable laws of
the State of New York, other securities laws or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
<PAGE>
11. Severability
If any provisions of this Agreement shall be held or made unenforceable by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
12. Definitions
As used in this Agreement, the terms "interested person" and "vote of a
majority of the outstanding securities" shall have the respective meanings set
forth in Sections 2(a)(19) and 2(a)(42) of the 1940 Act.
13. No Liability of Shareholders
This Agreement is executed by the Trustees of the Fund, not individually,
but rather in their capacity as Trustees under the Declaration of Trust made May
12, 1994. None of the Shareholders, Trustees, officers, employees, or agents of
the Fund shall be personally bound or liable under this Agreement, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder but only to the property of the Fund and, if the obligation
or claim relates to the property held by the Fund for the benefit of one or more
but fewer than all Portfolios, then only to the property held for the benefit of
the affected Portfolio.
14. Notice of Change in Partnership of Manager
The Manager agrees to notify the Fund within a reasonable period of time
regarding a material change in the membership of the Manager.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
<PAGE>
OCC ACCUMULATION TRUST
Attest:
s\ Maritza Martinez
- ----------------------------
By: s\ Ilana R. Marcus
--------------------------------
Title: Assistant Secretary
OPCAP ADVISORS
Attest:
- ----------------------------
By: s\ Bernard Garil
--------------------------------
Title: President
<PAGE>
Schedule A
to
Investment Advisory Agreement
between
OCC Accumulation Trust and OpCap Advisors
Annual Fee as a
Percentage of Daily
Name of Series Net Assets
- -------------- ----------
Equity Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Small Cap Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Managed Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Global Equity Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
U.S. Government Income Portfolio .60%
Bond Portfolio .50%
Money Market Portfolio .40%
<PAGE>
GENERAL DISTRIBUTOR'S AGREEMENT
BETWEEN
QUEST FOR VALUE ACCUMULATION TRUST
AND
QUEST FOR VALUE DISTRIBUTORS
September 16, 1994
Quest for Value Distributors
c/o Oppenheimer Capital
Oppenheimer Tower, 37th Floor
World Financial Center
New York, New York 10281
Dear Sirs:
QUEST FOR VALUE ACCUMULATION TRUST (formerly named Quest for Value Asset
Builder Trust), a Massachusetts business trust (the "Fund"), is preparing to
register as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and an indefinite number of shares of its capital
stock (hereinafter referred to as "shares") will be registered under the
Securities Act of 1933, as amended (the "1933 Act") to be offered for sale to
the public in a continuous public offering in accordance with the terms and
conditions set forth in the Prospectus included in the Fund's Registration
Statement as it may be amended from time to time.
In this connection, the Fund desires that your firm act as General
Distributor and as Agent of the Fund for the sale and distribution of shares
which have been registered as described above and of any additional shares which
may become registered during the term of this Agreement. You have advised the
Fund that you are willing to act as such General Distributor and Agent, and it
is accordingly agreed between us as follows:
1. The Fund hereby appoints you as General Distributor as exclusive Agent
for sale of its shares, pursuant to the aforesaid continuous public offering of
its shares, and the Fund further agrees from and after the date of this
Agreement, that it will not, without your consent, sell or agree to sell any
shares otherwise than through you except the Fund may issue shares in connection
with a merger, consolidation or acquisition of assets on such basis as may be
authorized or permitted under the 1940 Act.
2. You hereby accept such appointment and agree to use your best efforts to
sell such shares, provided, however, that when requested by the Fund at any time
because of market or other economic considerations or abnormal circumstances of
any kind, you will suspend such efforts. The Fund may also withdraw the offering
of the shares at any time when required by the provisions of any statue,
<PAGE>
order, rule or regulation of any governmental body having jurisdiction. It is
understood that you do not undertake to sell all or any specific portion of the
shares of the Fund.
3. The shares shall be sold by you at net asset value.
4. As General Distributor, you shall have the right to accept or reject
orders for the purchase of shares of the Fund. Any consideration which you may
receive in connection with a rejected purchase order will be returned promptly.
You agree promptly to issue confirmations of all accepted purchase orders and to
transmit a copy of such confirmations to the Fund, or if so directed, to any
duly appointed transfer or shareholder servicing agent of the Fund. The net
asset value of all shares which are the subject of such confirmations, computed
in accordance with the applicable rules under the 1940 Act, shall be a liability
of your company to the Fund to be paid promptly after receipt of payment from
the originating dealer and not later than eleven business days after such
confirmation even if you have not actually received payment from the originating
dealer. If the originating dealer shall fail to make timely settlement of its
purchase order in accordance with the rules of the National Association of
Securities Dealers,Inc., you shall have the right to cancel such purchase order
and, at your account and risk, to hold responsible the originating dealer. You
agree promptly to reimburse the Fund for any amount by which the Fund's losses
attributable to any such cancellation or to errors on your part in relation to
the effective date of accepted purchase orders, exceed contemporaneous gains
realized by the Fund for either of such reasons in respect to other purchase
orders. The Fund shall register or cause to be registered all shares sold by you
pursuant to the provisions hereof in such name or names and amounts as you may
request from time to time and the Fund shall issue or cause to be issued
certificates evidencing such shares for delivery to you or pursuant to your
direction if and to the extent that the shareholder account in question
contemplates the issuance of such share certificates. All shares of the Fund,
when so issued and paid for, shall be fully paid and non-assessable.
5. The Fund has delivered to you a copy of its current prospectus. The Fund
agrees that it will use its best efforts to continue the effectiveness of the
Fund's Registration Statement under the 1933 Act. The Fund further agrees to
prepare and file any amendments to its Registration Statement as may be
necessary and any supplemental data in order to comply with the 1933 Act. The
Fund will furnish you at your expense with a reasonable number of copies of the
Prospectus and any amended Prospectus for use in connection with the sale of
shares.
6. The Fund is preparing to register under the 1940 Act as an investment
company, and it will use its best efforts to maintain such registration and to
comply with the requirements of the 1940 Act.
7. At your request, the Fund will take such steps as may be necessary and
feasible to qualify shares for sale in states, territories or dependencies of
the United States of America, in the District of Columbia and in foreign
countries, in accordance with the laws thereof, and to renew or extend any such
qualification; provided however, that the Fund shall not be required to qualify
shares or to maintain the qualification of shares in any state, territory,
dependency, district or country where it shall deem such qualification
disadvantageous to the Fund.
2
<PAGE>
8. You agree that:
(a) Neither you nor any of your officers will take any long or short
position in the shares of the Fund, but this provision shall not prevent you or
your officers from acquiring shares of the Fund for investment purposes only;
(b) You shall furnish to the Fund any pertinent information required
to be inserted with respect to you as General Distributor within the purview of
the 1933 Act in any reports or registration required to be filed with any
governmental authority; and
(c) You will not make any representations inconsistent with the
information contained in the Registration Statement or Prospectus of the Fund
filed under the 1933 Act, as in effect from time to time.
9. The Fund will pay the cost of composition and printing of sufficient
copies of its Prospectus and financial statements as shall be required for
quarterly and annual distribution to its shareholders and the expense of
registering shares for sale under federal and state securities laws. You shall
pay the cost of printing the copies of the Fund's Prospectus and any sales
literature used by you in the public sale of the Fund's shares.
10. Unless earlier terminated pursuant to paragraph 11 hereof, this
Agreement shall remain in effect until two years from the date hereof. This
Agreement shall continue in effect from year to year thereafter provided that
such continuance shall be specifically approved at least annually (a) by the
Fund's Board of Trustees, including a vote of a majority of the Trustees who are
not parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such persons, cast in person at a meeting called for the purpose of
voting on such approval or (b) by the vote of the holders of a majority of the
outstanding voting securities of the Fund and by such a vote of the Trustees.
11. This Agreement may be terminated (a) by the General Distributor at any
time without penalty by giving sixty days' written notice (which notice may be
waived by the Fund); or (b) by the Fund at any time without penalty upon sixty
days' written notice to the General Distributor (which notice may be waived by
the General Distributor), provided that such termination by the Fund shall be
directed or approved by the Trustees or by the vote of the holders of a majority
of the outstanding voting securities of the Fund.
12. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall enure to the benefits of the parties hereto and
their respective successors, but this Agreement shall not be assigned by either
party and shall automatically terminated upon assignment.
3
<PAGE>
If the foregoing is in accordance with your understanding, kindly so
indicate by signing in the space provided below.
QUEST FOR VALUE ACCUMULATION TRUST
By: s\ Sheldon Siegel
--------------------------------
Title: Treasurer
Accepted:
QUEST FOR VALUE DISTRIBUTORS
By: s\ Peter Muratore
--------------------------------
Title: President
<PAGE>
CUSTODIAN CONTRACT
Between
THE QUEST FOR VALUE ASSET BUILDER TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment of Custodian and Property to be Held By It....................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States...................2
2.1 Holding Securities.................................................2
2.2 Delivery of Securities.............................................2
2.3 Registration of Securities.........................................5
2.4 Bank Accounts......................................................6
2.5 Availability of Federal Funds......................................6
2.6 Collection of Income...............................................6
2.7 Payment of Fund Monies.............................................7
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased..........................................................9
2.9 Appointment of Agents..............................................9
2.10 Deposit of Fund Assets in Securities System........................9
2.10A Fund Assets Held in the Custodian's Direct Paper System...........11
2.11 Segregated Account................................................12
2.12 Ownership Certificates for Tax Purposes...........................13
2.13 Proxies...........................................................13
2.14 Communications Relating to Portfolio Securities...................13
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States..............................14
3.1 Appointment of Foreign Sub-Custodians.............................14
3.2 Assets to be Held.................................................14
3.3 Foreign Securities Depositories...................................14
3.4 Agreements with Foreign Banking Institutions......................14
3.5 Access of Independent Accountants of the Fund.....................15
3.6 Reports by Custodian..............................................15
3.7 Transactions in Foreign Custody Account...........................15
3.8 Liability of Foreign Sub-Custodians...............................16
3.9 Liability of Custodian............................................16
3.10 Reimbursement for Advances........................................17
3.11 Monitoring Responsibilities.......................................17
3.12 Branches of U.S. Banks............................................17
3.13 Tax Law...........................................................18
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund...................................................18
<PAGE>
5. Proper Instructions.....................................................19
6. Actions Permitted Without Express Authority.............................19
7. Evidence of Authority...................................................20
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income...........................20
9. Records.................................................................21
10. Opinion of Fund's Independent Accountants...............................21
11. Reports to Fund by Independent Public Accountants.......................21
12. Compensation of Custodian...............................................21
13. Responsibility of Custodian.............................................22
14. Effective Period, Termination and Amendment.............................23
15. Successor Custodian.....................................................24
16. Interpretive and Additional Provisions..................................25
17. Additional Funds........................................................25
18. Massachusetts Law to Apply..............................................25
19. Prior Contracts.........................................................25
20. Shareholder Communications Election.....................................26
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Quest For Value Asset Builder Trust, a business
trust organized and existing under the laws of Massachusetts, having its
principal place of business at 200 Liberty Street, New York, New York, 10281
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and WHEREAS, the Fund intends to initially offer shares in 7
series, Equity Portfolio, Small Cap Portfolio, Global Equity Portfolio, Managed
Portfolio, Bond Portfolio, U.S. Government Income Portfolio, Money Market
Portfolio (such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 17,
being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
<PAGE>
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held by the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an issuer for which State Street Bank and Trust Company acts as
issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2
<PAGE>
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any sub
custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
3
<PAGE>
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund on behalf of
the Portfolio, which may be in the form of cash or obligations
issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the
book-entry system authorized by the U.S. Department of the Treasury,
the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Portfolio of the Fund;
4
<PAGE>
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the currently effective prospectus
and statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to
5
<PAGE>
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange
offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such bank
or trust company and the funds to be deposited with each such bank or
trust company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of
a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of such
Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on the
date of payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such
6
<PAGE>
income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest when
due on securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of
title to such options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to
act as a custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the Portfolio or
in the name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of repurchase
agreements entered into between the Fund on behalf of the Portfolio
and the Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the
7
<PAGE>
Custodian's account at the Federal Reserve Bank with such securities
or (ii) against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to Proper Instructions
from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses of
the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom such payment is to
be made.
8
<PAGE>
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific
written instructions from the Fund on behalf of such Portfolio to so
pay in advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to
carry out such of the provisions of this Article 2 as the Custodian
may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Portfolio;
9
<PAGE>
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices from
the Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall furnish
to the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities System for
the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the
10
<PAGE>
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Fund,
it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such loss
or damage if and to the extent that the Portfolio has not been made
whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System The Custodian may
deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the
11
<PAGE>
form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund
on behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transaction in the Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary,
12
<PAGE>
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of rights
in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers
of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.
13
<PAGE>
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Trustees, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial
14
<PAGE>
ownership for the assets of each Portfolio will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Portfolios held by the
foreign sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign subcustodian insofar
as such books and records relate to the performance of such foreign
banking institution under its agreement with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained
by a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a
Portfolio, the identity of the entity having physical possession of such
securities.
3.7 Transactions in Foreign Custody Account (a) Except as otherwise provided
in paragraph (b) of this Section 3.7, the provision of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis to the foreign
securities of the Fund held outside the United States by foreign
sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing
15
<PAGE>
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities
to the purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer. (c)
Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any
such nominee harmless from any liability as a holder of record of such
securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.12 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.9, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
16
<PAGE>
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to advance
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolios assets to the extent necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with
the initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
S200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a)
17
<PAGE>
of said Act. The appointment of any such branch as a sub custodian shall
be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the responsibility
of the Fund to notify the Custodian of the obligations imposed on the Fund
or the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other governmental
charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to
use reasonable efforts to assist the Fund with respect to any claim for
exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor
18
<PAGE>
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to the
Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and
19
<PAGE>
property of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
20
<PAGE>
9. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 3la-1 and
3la-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form N
lA, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
21
<PAGE>
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange
22
<PAGE>
contracts and assumed settlement) for the benefit of a Portfolio including the
purchase or sale of foreign exchange or of contracts for foreign exchange or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period. Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has reviewed the use by such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or
23
<PAGE>
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor
24
<PAGE>
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Contract relating to the duties
and obligations of the Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to The Equity Portfolio, Small Cap Portfolio, Global Equity Portfolio,
Managed Portfolio, Bond Portfolio, U.S. Government Income Portfolio, Money
Market Portfolio with respect to which it desires to have the Custodian render
services as custodian under the terms hereof, it shall so notify the Custodian
in writing, and if the Custodian agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
25
<PAGE>
20. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [x] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's
name, address, and share positions.
26
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 26 day of May, 1994.
ATTEST THE QUEST FOR VALUE ASSET BUILDER
TRUST
/s/Thomas Duggan By: /s/Deborah Kaback
- ---------------------- --------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By:
- ---------------------- --------------------------------------
Executive Vice President
27
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of THE QUEST FOR VALUE
ASSET BUILDER TRUST for use as sub-custodians for the Fund's securities and
other assets:
(Insert banks and securities depositories)
Certified:
- ---------------------------
Fund's Authorized Officer
Date:
- ---------------------------
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of the Quest for Value
Asset Builders Trust for use as subcustodians for the Fund's securities and
other assets:
Country Bank
- ------- ----
Argentina Citibank, N.A.
Australia Westpac Banking Corporation
Austria GiroCredit Bank Aktiengesellschaft der Sparkassen
Belgium Generale Bank
Brazil Citibank, N.A.
Canada Canada Trustco Mortgage Company
Chile Citibank, N.A.
Czech Republic Ceskoslovenska Obchodni Banka A.S.
Denmark Den Danske Bank
Finland Kansallis-Osake Pankki
France Banque Paribas
Germany Berliner Handels Und Frankfurter Bank
Hong Kong Standard Chartered Bank
Hungary Citibank, Budapest Rt.
India The Hong Kong & Shanghai Banking Corporation Limited
Indonesia Standard Chartered Bank
Ireland Bank of Ireland
Israel Bank Hapoalim B.M.
Italy Morgan Guaranty Trust Company
29
<PAGE>
Japan Sumitomo Trust & Banking Company Limited
Korea Bank of Seoul
Malaysia Standard Chartered Bank
Mexico Citibank, N.A.
Netherlands MeesPierson N.V.
New Zealand ANZ Banking Group (New Zealand) Limited
Norway Christiania Bank Og Kreditkasse
Phillipines Standard Chartered Bank
Poland Citibank Poland S.A.
Portugal Banco Comercial Portugues
Singapore The Development Bank of Singapore Ltd.
South Africa Standard Bank of South Africa Limited
Spain Banco Santander, S.A.
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Central Trust of China
Thailand Standard Chartered Bank
Turkey Citibank, N.A.
United Kingdom State Street London Limited
certified
- ----------
Fund's Authorized Officer
Date:_______________
30
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE QUEST FOR VALUE ACCUMULATION TRUST
(formerly known as Quest for Value Asset Builder Trust)
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Bank....................... 1
Article 2 Fees and Expenses.............................................. 4
Article 3 Representations and Warranties of the Bank..................... 5
Article 4 Representations and Warranties of the Fund..................... 5
Article 5 Data Access and Proprietary Information........................ 6
Article 6 Indemnification................................................ 7
Article 7 Standard of Care............................................... 9
Article 8 Covenants of the Fund and the Bank............................. 9
Article 9 Termination of Agreement.......................................10
Article 10 Additional Funds...............................................11
Article 11 Assignment.....................................................11
Article 12 Amendment......................................................11
Article 13 Massachusetts Law to Apply.....................................11
Article 14 Force Majeure..................................................11
Article 15 Consequential Damages..........................................12
Article 16 Merger of Agreement............................................12
Article 17 Limitations of Liability of the Trustees
and the Shareholders...........................................12
Article 18 Counterparts...................................................12
2
<PAGE>
AGREEMENT made as of the 16th day of September, 1994, by and between THE
QUEST FOR VALUE ACCUMULATION TRUST (formerly known as Quest for Value Asset
Builder Trust), a Massachusetts business trust, having its principal office and
place of business at 200 Liberty Street, New York, New York 10281 (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in seven series, the
Equity Portfolio, Small Cap Portfolio, Global Equity Portfolio, Managed
Portfolio, Bond Portfolio, U.S. Government Income Portfolio and Money Market
Portfolio (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows: Article l Terms of Appointment; Duties of
the Bank
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund, on behalf of the Portfolios, hereby employs and appoints the Bank to
act as, and the Bank agrees to act as its transfer agent for the authorized and
issued shares of beneficial interest of the Fund representing interests in each
of the respective Portfolios ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to
the Custodian of the Fund authorized pursuant to the Declaration
of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be deemed
to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over
3
<PAGE>
or cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the Bank
of indemnification satisfactory to the Bank and protecting the
Bank and the Fund, and the Bank at its option, may issue
replacement certificates in place of mutilated stock certificates
upon presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of Shares
which are authorized, based upon data provided to it by the Fund,
and issued and outstanding. The Bank shall also provide the Fund
on a regular basis with the total number of Shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the
4
<PAGE>
Bank per the attached service responsibility schedule. The Bank may at times
perform only a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule attached
hereto. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all
fees and reimbursable expenses within five days following the mailing of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials. Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state
5
<PAGE>
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer programs,
screen format, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with
the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of
the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose
of such information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data required
hereunder from being retransmitted to any other computer facility
or other location, except with the prior written consent of the
Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain certain
data included in the Data Access Services are solely responsible for the
contents of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND
SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
6
<PAGE>
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash of Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time. Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall on
behalf of the applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are received by the
Bank or its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
7
<PAGE>
6.03 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent. Article 7 Standard of
Care
7.01 The Bank shall at all times act in good faith and agrees to use
its best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees. Article 8
Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios promptly
furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as amended,
and the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records, information
and data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s). Additionally, the
Bank reserves the right to charge for any other reasonable
8
<PAGE>
expenses associated with such termination and/or a charge equivalent to the
average of three (3) months' fees.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series of
Shares in addition to The Equity Portfolio, Small Cap Portfolio, Global Equity
Portfolio, Managed Portfolio, Bond Portfolio, U.S. Government Income Portfolio
and Money Market Portfolio with respect to which it desires to have the Bank
render services as transfer agent under the terms hereof, it shall so notify the
Bank in writing, and if the Bank agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder. Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions. Article 12 Amendment
12.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 17 Limitations of Liability of the Trustees and Shareholders
9
<PAGE>
17.01 A copy of the Declaration of Trust of the Trust is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or Shareholders individually but are
binding only upon the assets and property of the Fund. Article 18 Counterparts
18.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
THE QUEST FOR VALUE ACCUMULATION
TRUST
BY:
s\ Sheldon Siegel
----------------------------------------
Treasurer
ATTEST:
- ------------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
----------------------------------------
Executive Vice President
ATTEST:
- ------------------------------
10
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
---- ----
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
<PAGE>
Service Performed Responsibility
Bank Fund
---- ----
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Article 1.02 (a), (b) and (c) of the
Agreement.
THE QUEST FOR VALUE ACCUMULATION
TRUST
BY:
s\ Sheldon Siegel
--------------------------------------
Treasurer
ATTEST:
s\ Thomas E. Duggan
- -----------------------------
STATE STREET BANK AND TRUST COMPANY
BY:
--------------------------------------
Executive Vice President
ATTEST:
- -----------------------------
<PAGE>
PARTICIPATION AGREEMENT
By and Among
QUEST FOR VALUE ACCUMULATION TRUST
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
And
QUEST FOR VALUE DISTRIBUTORS
THIS AGREEMENT, made and entered into this 21st day of February
1995 by and among American Enterprise Life Insurance Company, an Indiana
Corporation (hereinafter the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement,
as may be amended from time to time (each account referred to as the
"Account"), QUEST FOR VALUE ACCUMULATION TRUST, an open-end diversified
management investment company organized under the laws of the State of
Massachusetts (hereinafter the "Fund") and QUEST FOR VALUE DISTRIBUTORS, a
Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving
as the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has filed an application with the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission") to request an order granting Participating Insurance Companies
and variable annuity separate accounts and variable life insurance separate
accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and 15(b)
of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans (hereinafter the "application for a
mixed and shared funding exemptive order"). The parties to this Agreement
agree that the conditions or undertakings specified in the application for a
mixed and shared funding exemptive order and that may be imposed on the
Company, the Fund and/or the Underwriter by virtue of the receipt of such
order by the SEC shall be incorporated herein by reference, as of the date
such order is granted and such parties agree to comply with such conditions
and undertakings to the extent applicable to each such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
2
<PAGE>
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of Indiana, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the subaccounts of the Account
together as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order
3
<PAGE>
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 10:00 a.m. Eastern Time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated
4
<PAGE>
thereunder, the sale to which will not impair the tax treatment currently
afforded the Contracts. No shares of any Portfolio will be sold to the general
public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement are in
effect to govern such sales. The Fund shall make available upon written request
from the Company (i) a list of all other Participating Insurance Companies and
(ii) a copy of the Participation Agreement executed by any other Participating
Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be
5
<PAGE>
responsible for such action. If notification of redemption is received after
10:00 a.m. Eastern Time, payment for redeemed shares will be made on the next
following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such dividends and
6
<PAGE>
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Standard Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued
and sold in compliance with all applicable federal and state laws. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally
and validly established each Account as a separate account under applicable
state law and has registered the subaccounts of each Account together as a
unit investment trust in accordance with the provisions of the 1940 Act to
serve as segregated investment accounts for the Contracts, and that it will
maintain such registration for so long as any Contracts are outstanding. The
Company shall amend the registration statement under the 1933 Act for the
Contracts and the registration statement under the 1940 Act for the Account
from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable
7
<PAGE>
law. The Company shall register and qualify the Contracts for sale in
accordance with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts under
applicable provisions of the Internal Revenue Code and that it will make every
effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code,
and that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no
8
<PAGE>
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) complies with the
insurance laws and regulations of any state. The Company alone shall be
responsible for informing the Fund of any insurance restrictions imposed by
state insurance laws which are applicable to the Fund. To the extent feasible
and consistent with market conditions, the Fund will adjust its investments to
comply with the aforementioned state insurance laws upon written notice from the
Company of such requirements and proposed adjustments, it being agreed and
understood that in any such case the Fund shall be allowed a reasonable period
of time under the circumstances after receipt of such notice to make any such
adjustment.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is a member
in good standing of the National Association of Securities Dealers, Inc.,
("NASD") and is registered as a broker dealer with the SEC. The Underwriter
further represents that it will sell and distribute the Fund shares in
accordance with all applicable federal and state securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
9
<PAGE>
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's
Adviser, Quest for Value Advisors, is and shall remain duly registered under
all applicable federal and state securities laws and that the Adviser will
perform its obligations to the Fund in accordance with the laws of
Massachusetts and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
10
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company
may reasonably request for use with prospective contractowners and
applicants. The Underwriter shall print and distribute, at the Fund's or
Underwriter's expense, as many copies of said prospectus as necessary for
distribution to existing contractowners or participants. If requested by the
Company in lieu thereof, the Fund shall provide such documentation including
a final copy of a current prospectus set in type at the Fund's expense and
other assistance as is reasonably necessary in order for the Company at least
annually (or more frequently if the Fund prospectus is amended more
frequently) to have the new prospectus for the Contracts and the Fund's new
prospectus printed together in one document, in such case the Fund shall bear
its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders in such
11
<PAGE>
quantity as the Company shall reasonably require and shall bear the costs of
distributing them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or participants;
(ii) vote the Fund shares held in the Account in accordance with
instructions received from contractowners or participants; and
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as Fund
shares of such Portfolio for which instructions have been
received from the Company's contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
12
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least fifteen business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within
fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or
13
<PAGE>
prospectus for the Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in published reports for
each Account which are in the public domain or approved by the Company for
distribution to contractowners or participants, or in sales literature or
other promotional material approved by the Company, except with the
permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), sales literature (i.e., any written communication
distributed or made generally available to
14
<PAGE>
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
4.8 The Company agrees and acknowledges that Oppenheimer Capital
is the sole owner of name and mark "Quest for Value" and that all use of any
designation comprised in whole or part of such name or mark under this
Agreement shall inure to the benefit of Oppenheimer Capital. Except as
provided in Section 4.1, the Company shall not use any such name or mark on
its own behalf or on behalf of each Account in connection with marketing the
Contracts without prior written consent of Oppenheimer Capital. Oppenheimer
Capital consents to the use of the name and mark "Quest for Value" in
connection with each Account, subject to the terms of this agreement. Upon
termination of this Agreement for any reason, the Company shall cease all use
of such name or mark.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or
any Portfolio adopts and implements a plan pursuant to Rule 12b 1 under the
1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Underwriter may
make payments to the Company or to the underwriter for the Contracts if and
in amounts agreed
15
<PAGE>
may make payments to the Company or to the underwriter for the Contracts if
and in amounts agreed to by the Underwriter in writing. Currently, no such
payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement,
Fund proxy materials and reports, setting in type, printing and distributing
the prospectuses, the proxy materials and reports to existing shareholders
and contractowners, the preparation of all statements and notices required by
any federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant
to a plan, if any, under Rule 12b 1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will comply
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations in accordance with guidelines
provided by the Company prior to the execution of this Agreement
16
<PAGE>
and as necessary thereafter. In the event of a breach of this Article VI by
the Fund, it will take all reasonable steps (a) to notify the Company of such
breach and (b) to adequately diversify the Fund so as to achieve compliance
with the grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict
among the interests of the contractowners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no
action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision
in any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and
variable life insurance contractowners; or (f) a decision by an insurer to
disregard the voting instructions of contractowners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof. A majority of the Fund Board
shall consist of persons who are not "interested" persons of the Fund.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Fund Board. The Company agrees to assist the
Fund Board in carrying out its responsibilities as delineated in the
application for a mixed and shared funding exemptive order, by
17
<PAGE>
providing the Fund Board with all information reasonably necessary for the Fund
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Fund Board whenever contractowner voting
instructions are disregarded. The Fund Board shall record in its minutes or
other appropriate records, all reports received by it and all action with regard
to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies
shall, at their expense and to the extent reasonably practicable (as
determined by a majority of the disinterested Directors), take whatever steps
are necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (1) withdrawing the assets allocable to some or all of the
subaccounts of the separate accounts from the Fund or any Portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Fund, or submitting the question whether
such segregation should be implemented to a vote of all affected
contractowners and, as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity contractowners or variable life insurance
contractowners, of one or more Participating Insurance Companies) that votes
in favor of such segregation, or offering to the affected contractowners the
option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of contractowner voting instructions, and the
Company's judgment represents a minority position or would preclude a
majority vote, the Company may be required, at the Fund's election, to
withdraw the affected subaccount of the Account's investment in the Fund and
terminate this
18
<PAGE>
Agreement with respect to such subaccount of the Account. Any such
withdrawal and termination must take place within 60 days after the Fund
gives written notice to the Company that this provision is being implemented.
Until the end of such 60 day period the Underwriter and Fund shall continue
to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state
insurance regulators, then the Company will withdraw the affected subaccount
of the Account's investment in the Fund and terminate this Agreement with
respect to such subaccount of the Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written
notice to the Company that this provision is being implemented. Until the
end of such 60 day period the Underwriter and Fund shall continue to accept
and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of contractowners materially
adversely affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so
that the Fund Board may fully carry out the duties imposed upon it as
delineated in the application for a mixed and shared
19
<PAGE>
funding exemptive order, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the application for a mixed and shared
funding exemptive order) on terms and conditions materially different from
those contained in the application for a mixed and shared funding exemptive
order and/or a Mixed and Shared Funding Exemptive Order, once issued, then
(a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each person, if any, who controls or is associated with
the Fund or the Underwriter within the meaning of such terms under the
federal securities laws and any director, officer, employee or agent of the
foregoing (collectively, the "indemnified parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including reasonable legal
20
<PAGE>
and other expenses), to which the indemnified parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in the Contracts or
sales literature or other promotional material for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made;
provided that this agreement to indemnify shall not apply as to
any indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund for use in the registration statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations by
or on behalf of the Company (other than statements or
representations contained in the Fund registration statement,
Fund prospectus, Fund statement of additional information or
sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Fund registration statement,
Fund prospectus, statement of additional information or sales
literature or other promotional material of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made,
if such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf
of the Company or persons under its control; or
21
<PAGE>
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials or to make any payments under
the terms of this Agreement; or
(v) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or
result from any other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss, claim,
damage, liability or litigation is due to the willful misfeasance, bad faith,
gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of
the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each person, if any,
who controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any director, officer, employee
or agent of the foregoing (collectively, the "indemnified parties" for
purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter) or litigation (including reasonable legal and other
expenses) to which the indemnified parties may become subject under
22
<PAGE>
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Fund or sales literature or other
promotional material of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
in which they were made; provided that this agreement to
indemnify shall not apply as to any indemnified party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the
Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales
literature of the Fund (or any amendment or supplement thereto)
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement, the
Contract or Fund prospectus or statement of additional
information or sales literature or other promotional material
for the Contracts or of the Fund not supplied by the Underwriter
or the Fund or persons under the control of the Underwriter or
the Fund respectively) or wrongful conduct of the Underwriter or
the Fund or persons under the control of the Underwriter or the
Fund respectively, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, statement of additional information or sales
literature or other promotional material covering the Contracts
(or any amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on
23
<PAGE>
behalf of the Underwriter or the Fund or persons under the
control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements and procedures related thereto specified in Article
VI of this Agreement except if such failure is a result of the
Company's failure to comply with the notification procedures
specified in Article VI); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the
Fund in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter or the
Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter
may otherwise have.
(b) No party shall be entitled to indemnification if such loss, claim,
damage, liability or litigation is due to the willful misfeasance, bad faith,
gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter and
the Fund of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Contracts or the operation of
the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect
to any claim made against a party entitled to indemnification under this
Article VIII ("indemnified party" for the purpose of this
24
<PAGE>
Section 8.3) unless such indemnified party shall have notified the indemnifying
party in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such indemnified party (or after such party shall have received notice of
such service on any designated agent), but failure to notify the indemnifying
party of any such claim shall not relieve the indemnifying party from any
liability which it may have to the indemnified party against whom such action is
brought under the indemnification provision of this Article VIII, except to the
extent that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the
indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation, unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if
25
<PAGE>
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 8 is
due in accordance with its terms but for any reason is held to be
unenforceable with respect to a party entitled to indemnification
("indemnified party" for purposes of this Section 8.4) pursuant to the terms
of this Section 8, then each party obligated to indemnify pursuant to the
terms of this Section 8 shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities and litigations in such proportion as is appropriate to reflect
the relative benefits received by the parties to this Agreement in connection
with the offering of Fund shares to the Account and the acquisition, holding
or sale of Fund shares by the Account, or if such allocation is not permitted
by applicable law, in such proportions as is appropriate to reflect the
relative net benefits referred to above but also the relative fault of the
parties to this Agreement in connection with any actions that lead to such
losses, claims, damages, liabilities or litigations, as well as any other
relevant equitable considerations.
ARTICLE IX. APPLICABLE LAW
26
<PAGE>
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC grant (including, but not limited to, a Mixed and
Shared Funding Exemptive Order received pursuant to the application for a
mixed and shared exemptive order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the
requirements of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of the Fund shares,
which would have a material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
27
<PAGE>
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, which would have a
material adverse effect on the Fund's ability to perform its obligations
under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of
any necessary regulatory approvals and/or the vote of the contractowners
having an interest in the Account (or any subaccount) to substitute the
shares of another investment company for the corresponding Portfolio shares
of the Fund in accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying investment
media. The Company will give 30 days prior written notice to the Fund of the
date of any proposed vote or other action taken to replace the Fund's shares;
or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable material conflict
exists among the interests of (i) all contractowners of variable insurance
products of all separate accounts or (ii) the interests of the Participating
Insurance Companies investing in the Fund as delineated in Article VII of
this Agreement; or
(g) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet
the diversification requirements specified in Article VI hereof; or
28
<PAGE>
(i) at the option of any party to this Agreement, upon
another party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines
in its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this Agreement
or is the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Fund or
Underwriter; or
(l) at the option of the Fund in the event any of the
Contracts are not issued or sold in accordance with applicable federal and/or
state law. Termination shall be effective immediately upon such occurrence
without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is
based upon the provisions of Article VII, such prior written notice shall be
given in advance of the effective date of termination as required by such
provisions.
(b) In the event that any termination of this Agreement is
based upon the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt
written notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating the Agreement to
29
<PAGE>
the non-terminating parties, with said termination to be effective upon receipt
of such notice by the non-terminating parties.
(c) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the non-
terminating parties at least 30 days before the effective date of termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement,
subject to Section 1.3 of this Agreement, the Company may require the Fund
and the Underwriter to continue to make available additional shares of the
Fund for so long after the termination of this Agreement as the Company
desires pursuant to the terms and conditions of this Agreement as provided in
paragraph (b) below, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII
and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
30
<PAGE>
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
90 days after the Company shall have notified the Fund or Underwriter of its
intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address
as such party may from time to time specify in writing to the other party.
All notices shall be deemed given three business days after the date received
or rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil, President
Quest For Value Advisors
200 Liberty Street
New York, NY 10281
31
<PAGE>
If to the Company:
American Enterprise Life Insurance Company
80 South Eighth Street
Minneapolis, MN 55402
Attention: President
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
Quest for Value Distributors
Two World Financial Center
New York, NY 10080
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
32
<PAGE>
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY:
AMERICAN ENTERPRISE LIFE
INSURANCE COMPANY
SEAL By:
------------------------------
Fund:
QUEST FOR VALUE ACCUMULATION TRUST
SEAL By:
------------------------------
UNDERWRITER:
QUEST FOR VALUE DISTRIBUTORS
SEAL By:
------------------------------
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
Quest for Value Accumulation Trust, American Enterprise Life Insurance Company
and
Quest for Value Distributors
The following separate accounts of American Enterprise Life Insurance Company
are permitted in accordance with the provisions of this Agreement to invest
in Portfolios of the Fund shown in Schedule 2:
American Enterprise Variable Annuity Account, established July 15, 1987
February 21, 1995
<PAGE>
SCHEDULE 2
Participation Agreement
Among
Quest for Value Accumulation Trust, American Enterprise Life Insurance Company
and
Quest for Value Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the Quest for Value Accumulation Trust:
Managed Portfolio
U.S. Government Income Portfolio
February 21, 1995
<PAGE>
FUND PARTICIPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT is made this 3rd day of April, 1995, by and among Quest for
Value Accumulation Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, Connecticut General Life
Insurance Company, a life insurance company organized as a corporation under the
laws of the State of Connecticut (the "Company"), on its own behalf and on
behalf of each segregated asset account of the Company set forth in Schedule A,
as may be amended from time to time (the "Accounts"), and Quest for Value
Distributors, a Delaware general partnership, the Trust's Underwriter (the
"Underwriter").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts to be offered by life insurance
companies which have entered into fund participation agreements with the Trust
substantially identical to this Agreement (the "Participating Insurance
Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
several series of shares, each series representing an interest in a particular
managed portfolio of securities and other assets, and certain of those series
named in Schedule B (the "Portfolios") are to be made available for purchase by
the Company for the Accounts;
WHEREAS, the Trust has obtained an order from the Commission granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts relief from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the 1940 Act and Rules, 6e-2(b)(15) and 6e3-(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order").
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company
under the insurance laws of the State of Connecticut, to set aside and invest
assets attributable to the Contracts;
<PAGE>
WHEREAS, the Underwriter is registered as a broker dealer with the
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios named in
Schedule B as investment vehicles for the Accounts and the Underwriter is
authorized to sell such shares to the Accounts at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each Account of purchase orders and requests for redemption
pursuant to the Contracts relating to each Portfolio, provided that the Company
notifies the Trust of such purchase orders and requests for redemption by 9:30
a.m. Eastern time on the next following Business Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt and acceptance of a
purchase order by the Trust (or its agent), as established in accordance with
the provisions of the then current prospectus of the Trust describing Portfolio
purchase procedures. The Company will transmit orders from time to time to the
Trust for the purchase and redemption of shares of the Portfolios. The Trustees
of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern
time on the next Business Day after the Trust (or its agent) receives the
purchase order. Upon receipt by the Trust of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Commission.
<PAGE>
1.4. The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt and acceptance by the Trust (or its
agent) of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing Portfolio
redemption procedures. The Trust shall make payment for such shares in the
manner established from time to time by the Trust. Proceeds of redemption with
respect to a Portfolio will normally be paid to the Company for an Account in
federal funds transmitted by wire to the Company by order of the Trust with the
reasonable expectation of receipt by the Company by 2:00 p.m. Eastern time on
the next Business Day after the receipt by the Trust (or its agent) of the
request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act. Neither the Trust nor the Underwriter shall bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone shall be responsible for such action.
l.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted against
one another for the purpose of determining the amount of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7. The Trust shall furnish, as reasonably practicable, on or before the
ex-dividend date, notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the Trust. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated and shall use its best efforts to make such net asset
value per share available to the Company by 6:30 p.m. Eastern time each Business
Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts and to
certain qualified pension and retirement plans to the extent permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and the Mixed and Shared Funding Exemptive Order. No shares of any
<PAGE>
Portfolio will be sold directly to the general public. The Company agrees that
it will use Trust shares only for the purposes of funding the Contracts through
the Accounts listed in Schedule A, as amended from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.9 and
Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2. At the option of the Company, the Trust and/or the Underwriter shall
either (a) provide the Company with as many copies of portions of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to each of
the series of the Trust other than the Portfolios has been deleted to the extent
practicable. Should the Company wish to print any such document in a different
format than that provided by the Trust, the Company shall bear the cost of any
format change. The Trust shall provide the Company with a copy of its current
statement of additional information, including any amendments or supplements, in
a form suitable for duplication by the Company. The Trust (at its expense) shall
provide the Company with copies of any Trust-sponsored proxy materials in such
quantity as the Company shall reasonably require for distribution to Contract
owners.
2.3. The Trust and/or the Underwriter shall bear its proportionate share of
the costs of printing and distributing documents including the Trust's
prospectus, shareholder reports and other shareholder communications to owners
of Contracts for which a Portfolio or Portfolios of the Trust is serving or may
serve as an investment vehicle, using the number of pages as a guide. The
Company will use its best efforts to control those costs, will submit bills
therefor to the Trust for reimbursement, and will advise the Trust semi-annually
of how many Contract owners are using the Trust as a funding vehicle. The
Company shall bear the costs of distributing proxy materials (or similar
materials such as voting solicitation instructions) and statements of additional
information to Contract owners, as well as printing and distribution costs
relating to prospective owners of Contracts. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
<PAGE>
2.4. The Company agrees and acknowledges that Oppenheimer Capital is the
sole owner of the name and mark "Quest for Value" and that all use of any
designation comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of Oppenheimer Capital. Except as provided in Section
2.5, the Company shall not use any such name or mark on its own behalf or on
behalf of the Accounts or Contracts in any registration statement,
advertisement, sales literature or other materials relating to the Accounts or
Contracts without the prior written consent of Oppenheimer Capital. Upon
termination of this Agreement for any reason, the Company shall cease all use of
any such name or mark as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus or statement of additional
information describing the Contracts, each report to Contract owners, proxy
statement, application for exemption or request for no-action letter that relate
to the Trust or its shares and/or in which the Trust, Underwriter or the Trust's
Adviser is named contemporaneously with the filing of such document with the
Commission. The Company shall furnish, or shall cause to be furnished, to the
Trust or the Underwriter or their designee each piece of sales literature or
other promotional material in which the Trust, Underwriter or the Trust's
Adviser is named, at least five Business Days prior to its use. No such material
shall be used if the Trust or its designee reasonably objects to such use within
five Business Days after receipt of such material.
2.6. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust, Underwriter or the
Trust's Adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or by
the Underwriter or their designee, except as required by legal process or
regulatory authorities or with the written permission of the Trust or the
Underwriter or their respective designees. The Trust and the Underwriter agree
to respond to any request for approval on a prompt and timely basis. The Company
shall adopt and implement procedures reasonably designed to ensure that "broker
only" materials including information therein about the Trust, Underwriter or
the Trust's Adviser are not distributed to existing or prospective Contract
owners.
2.7. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios, the
Underwriter and the Trusts's Adviser, in such form as the Company may reasonably
require, as the Company shall reasonably request in connection with the
preparation of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.8. The Trust and the Underwriter shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the
<PAGE>
Company or concerning the Company, the Accounts or the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Contracts (as such registration
statement and prospectus may be amended or supplemented from time to time), or
in materials approved by the Company for distribution including sales literature
or other promotional materials, except as required by legal process or
regulatory authorities or with the written permission of the Company. The
Company agrees to respond to any request for approval on a prompt and timely
basis.
2.9. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose cash values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. Participating Insurance Companies shall be responsible
for assuring that each of their segregated accounts calculates voting privileges
in a manner consistent with all other Participating Insurance Companies. With
respect to each registered Account, the Company will (i) solicit voting
instructions from Contract owners; (ii) vote the shares of each Portfolio of the
Trust held by a registered Account in accordance with instructions received from
Contract owners; and (iii) vote shares of each Portfolio of the Trust held by a
registered Account and for which no timely voting instructions from Contract
owners are received in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way recommend
or oppose or interfere with the solicitation of proxies for Portfolio shares
held to fund the Contracts without the prior written consent of the Trust, which
consent may be withheld in the Trust's sole discretion. The Company reserves the
right, to the extent permitted by law, to vote shares held in any Account in its
sole discretion.
2.10 The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the Contracts or the
Trust, including relevant portions of any "deficiency letter" and any response
thereto.
2.11. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate compensation for,
other services relating to the Trust, the Accounts or both.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Connecticut
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A, and that
CIGNA Financial Advisors, Inc., the principal underwriter for the Contracts, is
registered as a broker-dealer under the 1934 Act and is a member in good
standing of the NASD.
<PAGE>
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act and cause
each Account to remain so registered to serve as a segregated asset account for
the Contracts, unless an exemption from registration is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance law suitability requirements.
3.4. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as life insurance policies
or annuity contracts respectively, under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Trust and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
3.5 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.6. The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
sold in accordance with all applicable federal and state laws, and that the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.7 The Trust represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Trust. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Trust of any insurance
restrictions imposed by state insurance laws which are applicable to the Trust.
To the extent feasible and consistent with market conditions, the Trust will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Trust
shall be allowed a reasonable period of time under the circumstances after
receipt of such notice to make any such adjustment.
<PAGE>
3.8. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance within the grace period afforded by Regulation 1.817-5.
3.9. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.10. The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ("disinterested Trustees"), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.11. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less than the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.12. The Underwriter is registered, and will remain registered, during the
term of this Agreement, as a broker dealer under the 1934 Act and is a member in
good standing of the NASD. Furthermore, the Underwriter represents that the
Trust's Adviser, Quest for Value Advisors, is duly organized and a validly
existing Delaware general partnership and that it is registered and will during
the term of the Agreement remain registered as an investment adviser under the
1940 Act.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies and
qualified pension and retirement plans. In such event, the Trustees will monitor
the Trust for the existence of any material irreconcilable conflict between the
interests of the contract owners of all Participating Insurance Companies. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) An action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an
<PAGE>
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Trust shall promptly inform the
Company of any determination by the Trustees that an irreconcilable material
conflict exists and of the implications thereof. A majority of the Board of
Trustees of the Trust shall consist of persons who are not "interested" persons
of the Trust.
4.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular has reviewed and agrees to comply with the
conditions to the requested relief set forth therein. As set forth in the Mixed
and Shared Funding Exemptive Order, the Company agrees to promptly report any
potential or existing conflicts of which it is aware to the Trustees. The
Company will assist the Trustees in carrying out their responsibilities as
delineated in the Mixed and Shared Funding Exemptive Order, by providing the
Trustees with all information reasonably necessary for and requested by the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may be made in
care of the Trust. The Board of Trustees shall record in its minutes or other
appropriate records, all reports received by it and all action with regard to a
conflict.
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees) take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the Accounts
from the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting the question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such
<PAGE>
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that the Trust has determined that such decision has created
an irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any material funding irreconcilable conflict, but in no
event will the Trust be required to establish new funding medium for the
Contracts. In the event that the Trustees determine that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Trust and terminate this
Agreement within six (6) months after the Trustees inform the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if reasonably deemed appropriate by the
Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as defined
in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust, the Underwriter, and each of the Trust's and the
Underwriter's Trustees,
<PAGE>
officers, employees and agents and each person, if any, who controls or is
associated with the Trust or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "Indemnified Parties" for
purposes of this Article V) against any and all losses, claims, damages,
liabilities, joint or several, (including amounts paid in settlement with the
written consent of the Company, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)(collectively, "Losses"), to
which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing)(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and was accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
<PAGE>
5.2. Indemnification By the Underwriter. The Underwriter, on its own behalf
and on behalf of the Trust, agrees to indemnify and hold harmless the Company
and each of its directors, officers, employees, and agents and each person, if
any, who controls or is associated with the Company within the meaning of the
federal securities laws (collectively, the "Indemnified Parties" for the
purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith)(collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Trust or the
Underwriter by or on behalf of the Company for use in Trust Documents or
otherwise for use in connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) by the Underwriter or the Trust or wrongful conduct of
the Underwriter or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the
Underwriter and the Trust; or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter and the Trust in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter and the Trust; or
(f) arise out of or result from the provision by the Trust to the
Company of no net asset value per share or an erroneous net asset value per
share on a given Business Day for
<PAGE>
any Portfolio, or from the failure of the Trust to advise of a dividend or
capital gains distribution as provided in Section 1.7. The Company in such
event shall be entitled to an adjustment to the number of shares of any
such Portfolio purchased or redeemed to reflect the correct net asset value
per share. Any error in the calculation or reporting of net asset value per
share, dividend or capital gains distribution information shall be reported
promptly upon discovery to the Company.
5.3. Neither the Company nor the Underwriter on its behalf and on behalf of
the Trust shall be liable under the indemnification provisions of Sections 5.1
or 5.2, as applicable, with respect to any Losses incurred or assessed against
an Indemnified Party that arise from such Indemnified Party's willful
misfeasance, bad faith or negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4.Neither the Company nor the Underwriter on its behalf and on behalf of
the Trust shall be liable under the indemnification provisions of Sections 5.1
or 5.2, as applicable, with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the other party in
writing within a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim shall have been
served upon or otherwise received by such Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party against
whom indemnification is sought of any such claim or shall not relieve that party
from any liability which it may have to the Indemnified Party in the absence of
Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI.
Termination
6.1.This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment.
<PAGE>
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective date
of termination of this Agreement for a period that is reasonable under the
circumstances but need not be for more than 90 days.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Mr. Bernard H. Garil
President
Quest for Value Advisors
New York, NY 10281
If to the Company:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152
Attention: Robert A. Picarello, Chief Counsel,
Individual Insurance Operations
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
<PAGE>
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the parties to each other.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and that no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the NASD
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by any party hereto without the prior written approval of all the
parties.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by all the
parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose such
confidential information without the written consent of the affected party
unless such information has become publicly available.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Quest for Value Distributors
By: s/ Thomas E. Duggan
-----------------------------------
Name:
Title: Secretary
Quest for Value Accumulation Trust
By: s/ Bernard H. Garil
-----------------------------------
Name:
Title: Vice President
Connecticut General Life Insurance Company
By: s/ Ray H. Bubbs
-----------------------------------
Name:
Title: Senior Vice President
<PAGE>
Schedule A
to
FUND PARTICPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
dated April 3, 1995
o CG Variable Annuity Separate Account II
o CG Variable Life Insurance Separate Account I
o CG Variable Life Insurance Separate Account II
<PAGE>
Schedule B
to
FUND PARTICPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
dated April 3, 1995
o Quest for Value Accumulation Trust Global Equity Portfolio
o Quest for Value Accumulation Trust Managed Portfolio
o Quest for Value Accumulation Trust Small Cap Portfolio
<PAGE>
AUGUST 30, 1996 AMENDMENT TO
FUND PARTICIPATION AGREEMENT
AMONG
OCC ACCUMULATION TRUST,
OCC DISTRIBUTORS, and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
This is an amendment to the April 3, 1995 Fund Participation Agreement
("Agreement") among OCC Accumulation Trust (formerly Quest for Value
Accumulation Trust), OCC Distributors (formerly Quest for Value Distributors)
and Connecticut General Life Insurance Company ("Company").
Schedule A to the Agreement is hereby amended to add the following separate
account of the Company:
- - CG Corporate Insurance Variable Life Separate Account 02
Schedule B to the Agreement is hereby amended to read as follows:
- - OCC Global Equity Portfolio**
- - OCC Managed Portfolio*
- - OCC Small Cap Portfolio*
- - OCC Equity Portfolio***
*- For all separate accounts listed in Schedule A
**- For all separate accounts listed in Schedule A except CG Corporate
Insurance Variable Life Separate Account 02
***- For CG Corporate Insurance Variable Life Separate Account 02 only
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Amendment to the Agreement as of August 30, 1996.
OCC ACCUMULATION TRUST
By: s/Ilana R. Marcus
-----------------------
Name: Ilana R. Marcus
Title: Assistant Secretary
OCC DISTRIBUTORS
By: s/Peter F. Muratore
-----------------------
Name: Peter F. Muratore
Title: President
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: s/James F. Meehan
-----------------------
Name: James F. Meehan
Title: Sr. Vice President
<PAGE>
FUND PARTICIPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CIGNA LIFE INSURANCE COMPANY
THIS AGREEMENT is made this 5th day of September, 1995, by and among Quest
for Value Accumulation Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust, CIGNA Life Insurance
Company, a life insurance company organized as a corporation under the laws of
the State of Connecticut (the "Company"), on its own behalf and on behalf of
each segregated asset account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Quest for Value Distributors, a
Delaware general partnership, the Trust's Underwriter (the "Underwriter").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts to be offered by life insurance
companies which have entered into fund participation agreements with the Trust
substantially identical to this Agreement (the "Participating Insurance
Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into
several series of shares, each series representing an interest in a particular
managed portfolio of securities and other assets, and certain of those series
named in Schedule B (the "Portfolios") are to be made available for purchase by
the Company for the Accounts;
WHEREAS, the Trust has obtained an order from the Commission granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts relief from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the 1940 Act and Rules, 6e-2(b)(15) and 6e3-(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order").
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company
under the insurance laws of the State of Connecticut, to set aside and invest
assets attributable to the Contracts;
<PAGE>
WHEREAS, the Underwriter is registered as a broker dealer with the
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
WHEREAS, the Company desires to use shares of the Portfolios named in
Schedule B as investment vehicles for the Accounts and the Underwriter is
authorized to sell such shares to the Accounts at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for the receipt from each Account of purchase orders and requests for redemption
pursuant to the Contracts relating to each Portfolio, provided that the Company
notifies the Trust of such purchase orders and requests for redemption by 9:30
a.m. Eastern time on the next following Business Day, as defined in Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt and acceptance of a
purchase order by the Trust (or its agent), as established in accordance with
the provisions of the then current prospectus of the Trust describing Portfolio
purchase procedures. The Company will transmit orders from time to time to the
Trust for the purchase and redemption of shares of the Portfolios. The Trustees
of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
if, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, such action
is deemed in the best interests of the shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio on
behalf of an Account with federal funds to be transmitted by wire to the Trust,
with the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern
time on the next Business Day after the Trust (or its agent) receives the
purchase order. Upon receipt by the Trust of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Commission.
<PAGE>
1.4.The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt and acceptance by the Trust (or its
agent) of the request for redemption, as established in accordance with the
provisions of the then current prospectus of the Trust describing Portfolio
redemption procedures. The Trust shall make payment for such shares in the
manner established from time to time by the Trust. Proceeds of redemption with
respect to a Portfolio will normally be paid to the Company for an Account in
federal funds transmitted by wire to the Company by order of the Trust with the
reasonable expectation of receipt by the Company by 2:00 p.m. Eastern time on
the next Business Day after the receipt by the Trust (or its agent) of the
request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act. Neither the Trust nor the Underwriter shall bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds; the Company alone shall be responsible for such action.
l.5. Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 on any Business Day may be netted against
one another for the purpose of determining the amount of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Accounts. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7. The Trust shall furnish, as reasonably practicable, on or before the
ex-dividend date, notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the Trust. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.8. The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated and shall use its best efforts to make such net asset
value per share available to the Company by 6:30 p.m. Eastern time each Business
Day.
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset accounts and to
certain qualified pension and retirement plans to the extent permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and the Mixed and Shared Funding Exemptive Order. No shares of any
Portfolio will be sold directly to the general public. The Company agrees that
it will use Trust
<PAGE>
shares only for the purposes of funding the Contracts through the Accounts
listed in Schedule A, as amended from time to time.
1.10. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.9 and
Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2. At the option of the Company, the Trust and/or the Underwriter shall
either (a) provide the Company with as many copies of portions of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to each of
the series of the Trust other than the Portfolios has been deleted to the extent
practicable. Should the Company wish to print any such document in a different
format than that provided by the Trust, the Company shall bear the cost of any
format change. The Trust shall provide the Company with a copy of its current
statement of additional information, including any amendments or supplements, in
a form suitable for duplication by the Company. The Trust (at its expense) shall
provide the Company with copies of any Trust-sponsored proxy materials in such
quantity as the Company shall reasonably require for distribution to Contract
owners.
2.3. The Trust and/or the Underwriter shall bear its proportionate share of
the costs of printing and distributing documents including the Trust's
prospectus, shareholder reports and other shareholder communications to owners
of Contracts for which a Portfolio or Portfolios of the Trust is serving or may
serve as an investment vehicle, using the number of pages as a guide. The
Company will use its best efforts to control those costs, will submit bills
therefor to the Trust for reimbursement, and will advise the Trust semi-annually
of how many Contract owners are using the Trust as a funding vehicle. The
Company shall bear the costs of distributing proxy materials (or similar
materials such as voting solicitation instructions) and statements of additional
information to Contract owners, as well as printing and distribution costs
relating to prospective owners of Contracts. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
<PAGE>
2.4. The Company agrees and acknowledges that Oppenheimer Capital is the
sole owner of the name and mark "Quest for Value" and that all use of any
designation comprised in whole or part of such name or mark under this Agreement
shall inure to the benefit of Oppenheimer Capital. Except as provided in Section
2.5, the Company shall not use any such name or mark on its own behalf or on
behalf of the Accounts or Contracts in any registration statement,
advertisement, sales literature or other materials relating to the Accounts or
Contracts without the prior written consent of Oppenheimer Capital. Upon
termination of this Agreement for any reason, the Company shall cease all use of
any such name or mark as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust or
its designee a copy of each Contract prospectus or statement of additional
information describing the Contracts, each report to Contract owners, proxy
statement, application for exemption or request for no-action letter that relate
to the Trust or its shares and/or in which the Trust, Underwriter or the Trust's
Adviser is named contemporaneously with the filing of such document with the
Commission. The Company shall furnish, or shall cause to be furnished, to the
Trust or the Underwriter or their designee each piece of sales literature or
other promotional material in which the Trust, Underwriter or the Trust's
Adviser is named, at least five Business Days prior to its use. No such material
shall be used if the Trust or its designee reasonably objects to such use within
five Business Days after receipt of such material.
2.6. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust, Underwriter or the
Trust's Adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or by
the Underwriter or their designee, except as required by legal process or
regulatory authorities or with the written permission of the Trust or the
Underwriter or their respective designees. The Trust and the Underwriter agree
to respond to any request for approval on a prompt and timely basis. The Company
shall adopt and implement procedures reasonably designed to ensure that "broker
only" materials including information therein about the Trust, Underwriter or
the Trust's Adviser are not distributed to existing or prospective Contract
owners.
2.7. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios, the
Underwriter and the Trusts's Adviser, in such form as the Company may reasonably
require, as the Company shall reasonably request in connection with the
preparation of registration statements, prospectuses and annual and semi-annual
reports pertaining to the Contracts.
2.8. The Trust and the Underwriter shall not give, and agree that no
affiliate of either of them shall give, any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for
<PAGE>
the Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
2.9. So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose cash values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. Participating Insurance Companies shall be responsible
for assuring that each of their segregated accounts calculates voting privileges
in a manner consistent with all other Participating Insurance Companies. With
respect to each registered Account, the Company will (i) solicit voting
instructions from Contract owners; (ii) vote the shares of each Portfolio of the
Trust held by a registered Account in accordance with instructions received from
Contract owners; and (iii) vote shares of each Portfolio of the Trust held by a
registered Account and for which no timely voting instructions from Contract
owners are received in the same proportion as those shares for which voting
instructions are received. The Company and its agents will in no way recommend
or oppose or interfere with the solicitation of proxies for Portfolio shares
held to fund the Contracts without the prior written consent of the Trust, which
consent may be withheld in the Trust's sole discretion. The Company reserves the
right, to the extent permitted by law, to vote shares held in any Account in its
sole discretion.
2.10 The Company and the Trust will each provide to the other information
about the results of any regulatory examination relating to the Contracts or the
Trust, including relevant portions of any "deficiency letter" and any response
thereto.
2.11. No compensation shall be paid by the Trust to the Company, or by the
Company to the Trust, under this Agreement (except for specified expense
reimbursements). However, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate compensation for,
other services relating to the Trust, the Accounts or both.
2.12. At least annually the Trust will provide the Company with a listing
of the investments held in each Portfolio, and with respect to and as of each
other calendar quarter, will provide the Company with copies of the worksheets
by which the Trust determines compliance by each Portfolio with Section 817(h)
of the Code and related rules and regulations.
ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Connecticut
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A, and that
CIGNA Financial Advisors, Inc., the principal underwriter for the
<PAGE>
Contracts, is registered as a broker-dealer under the 1934 Act and is a member
in good standing of the NASD.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act and cause
each Account to remain so registered to serve as a segregated asset account for
the Contracts, unless an exemption from registration is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance law suitability requirements.
3.4. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as life insurance policies
or annuity contracts respectively, under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Trust and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
3.5 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.6. The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
sold in accordance with all applicable federal and state laws, and that the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.7 The Trust represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Trust. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Trust of any insurance
restrictions imposed by state insurance laws which are applicable to the Trust.
To the extent feasible and consistent with market conditions, the Trust will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Trust
shall be allowed a reasonable period of time under the circumstances after
receipt of such notice to make any such adjustment.
<PAGE>
3.8. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance within the grace period afforded by Regulation 1.817-5.
3.9. The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.10.The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ("disinterested Trustees"), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.11. The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less than the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.12. The Underwriter is registered, and will remain registered, during the
term of this Agreement, as a broker dealer under the 1934 Act and is a member in
good standing of the NASD. Furthermore, the Underwriter represents that the
Trust's Adviser, Quest for Value Advisors, is duly organized and a validly
existing Delaware general partnership and that it is registered and will during
the term of the Agreement remain registered as an investment adviser under the
1940 Act.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies and
qualified pension and retirement plans. In such event, the Trustees will monitor
the Trust for the existence of any material irreconcilable conflict between the
interests of the contract owners of all Participating Insurance Companies. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an
<PAGE>
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Trust shall promptly inform the
Company of any determination by the Trustees that an irreconcilable material
conflict exists and of the implications thereof. A majority of the Board of
Trustees of the Trust shall consist of persons who are not "interested" persons
of the Trust.
4.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular has reviewed and agrees to comply with the
conditions to the requested relief set forth therein. As set forth in the Mixed
and Shared Funding Exemptive Order, the Company agrees to promptly report any
potential or existing conflicts of which it is aware to the Trustees. The
Company will assist the Trustees in carrying out their responsibilities as
delineated in the Mixed and Shared Funding Exemptive Order, by providing the
Trustees with all information reasonably necessary for and requested by the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may be made in
care of the Trust. The Board of Trustees shall record in its minutes or other
appropriate records, all reports received by it and all action with regard to a
conflict.
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees) take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the Accounts
from the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting the question of whether or not such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such
<PAGE>
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that the Trust has determined that such decision has created
an irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any material funding irreconcilable conflict, but in no
event will the Trust be required to establish new funding medium for the
Contracts. In the event that the Trustees determine that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Trust and terminate this
Agreement within six (6) months after the Trustees inform the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if reasonably deemed appropriate by the
Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as defined
in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust, the Underwriter, and each of the Trust's and the
Underwriter's Trustees, officers, employees and agents and each person, if any,
who controls or is associated with the Trust
<PAGE>
or the Underwriter within the meaning of such terms under the federal securities
laws (collectively, the "Indemnified Parties" for purposes of this Article V)
against any and all losses, claims, damages, liabilities, joint or several,
(including amounts paid in settlement with the written consent of the Company,
which consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith)(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing)(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and was accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
5.2.Indemnification By the Underwriter. The Underwriter, on its own behalf
and on behalf of the Trust, agrees to indemnify and hold harmless the Company
and each of its directors, officers, employees, and agents and each person, if
any, who controls or is associated with the
<PAGE>
Company within the meaning of the federal securities laws (collectively, the
"Indemnified Parties" for the purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter, which consent shall not be unreasonably
withheld) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)(collectively, "Losses"), to
which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Trust or the
Underwriter by or on behalf of the Company for use in Trust Documents or
otherwise for use in connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) by the Underwriter or the Trust or wrongful conduct of
the Underwriter or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the
Underwriter and the Trust; or
(d) arise out of or result from any failure by the Trust to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter and the Trust in
this Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter and the Trust; or
(f) arise out of or result from the provision by the Trust to the
Company of no net asset value per share or an erroneous net asset value per
share on a given Business Day for any Portfolio, or from the failure of the
Trust to advise of a dividend or capital gains distribution as provided in
Section 1.7. The Company in such event shall be entitled to an adjustment
to the number of shares of any such Portfolio purchased or redeemed to
reflect the correct net asset value per share. Any error in the calculation
or reporting of net asset
<PAGE>
value per share, dividend or capital gains distribution information shall
be reported promptly upon discovery to the Company.
5.3. Neither the Company nor the Underwriter on its behalf and on behalf of
the Trust shall be liable under the indemnification provisions of Sections 5.1
or 5.2, as applicable, with respect to any Losses incurred or assessed against
an Indemnified Party that arise from such Indemnified Party's willful
misfeasance, bad faith or negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4. Neither the Company nor the Underwriter on its behalf and on behalf of
the Trust shall be liable under the indemnification provisions of Sections 5.1
or 5.2, as applicable, with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the other party in
writing within a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim shall have been
served upon or otherwise received by such Indemnified Party (or after such
Indemnified Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the party against
whom indemnification is sought of any such claim or shall not relieve that party
from any liability which it may have to the Indemnified Party in the absence of
Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI.
Termination
6.1. This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios for any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of any
Portfolio and redeem shares of any Portfolio pursuant to the terms and
conditions of this Agreement for all Contracts in effect on the effective date
of termination of this Agreement for a period that is reasonable under the
circumstances but need not be for more than 90 days.
<PAGE>
6.3. The provisions of Article V shall survive the termination of
this Agreement, and the provisions of Article IV and Section 2.9 shall survive
the termination of this Agreement as long as shares of the Trust are held on
behalf of Contract owners in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Mr. Bernard H. Garil
President
Quest for Value Advisors
New York, NY 10281
<PAGE>
If to the Company:
CIGNA Life Insurance Company
900 Cottage Grove Road
Hartford, CT 06152-2321
Attention: Robert A. Picarello, Chief Counsel,
Individual Insurance Operations
ARTICLE VIII.
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the parties to each other.
8.5. All liabilities of the Trust arising, directly or indirectly, under
this Agreement, of any and every nature whatsoever, shall be satisfied solely
out of the assets of the Trust and that no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the NASD
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
<PAGE>
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by any party hereto without the prior written approval of all the
parties.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by all the
parties.
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto, and shall not disclose such
confidential information without the written consent of the affected party
unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Quest for Value Distributors
By: s\ Thomas E. Duggan
-----------------------------------
Name:
Title: Secretary
Quest for Value Accumulation Trust
By: s\ Ilana R. Marcus
-----------------------------------
Name:
Title: Assistant Secretary
CIGNA Life Insurance Company
By: s\ Michelle L. Kaazman
-----------------------------------
Name:
Title: Vice President
<PAGE>
Schedule A
to
FUND PARTICPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CIGNA LIFE INSURANCE COMPANY
dated September 5, 1995
o CIGNA Variable Annuity Separate Account I
<PAGE>
Schedule B
to
FUND PARTICPATION AGREEMENT
AMONG
QUEST FOR VALUE ACCUMULATION TRUST,
QUEST FOR VALUE DISTRIBUTORS, and
CIGNA LIFE INSURANCE COMPANY
dated September 5, 1995
o Quest for Value Accumulation Trust Global Equity Portfolio
o Quest for Value Accumulation Trust Managed Portfolio
o Quest for Value Accumulation Trust Small Cap Portfolio
<PAGE>
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 West 47th Street New York, N.Y. 10036-1510
Telephone: (212) 626-0800 Telecopier (212) 626-0799
September 12, 1994
The Quest for Value Asset Builder Trust
One World Financial Center
New York, New York 10281-1098
Dear Sir/Madam:
This opinion is being furnished in connection with the registration of the
Quest for Value Asset Builder Trust, a Massachusetts business trust (the
"Trust"), of an indefinite number of shares of beneficial interest, $.01 par
value (the "Shares") pursuant to the Trust's registration statement on Form N-1A
(File No. 33-78944), as amended (the "Registration Statement"), under the
Securities Act of 1933 (the "1933 Act"), as amended and the Investment Company
Act of 1940, as amended.
As counsel for the Trust, we have examined such Trust records, certificates
and other documents and reviewed such questions of law as we have considered
necessary or appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have
relied upon the opinion of Hale and Dorr, dated September 12, 1994.
Our opinion below, as it relates to the non-assessability of the Shares, is
qualified to the extent that under Massachusetts law, shareholders of a
Massachusetts business trust may be held personally liable for the obligations
of the Trust. In this regard, however, please be advised that the Declaration
of Trust disclaims shareholder liability for acts and obligations of the Trust
and requires that notice of such disclaimer be given in each written obligation,
contract, instrument, certificate, share or other security of the Trust or
undertaking made or issued by the Trustees or officers of the Trust. Also, the
Declaration of Trust provides for indemnification out of Trust property for all
loss and expense of any shareholder held personally liable for the obligations
of the Trust.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in accordance with the terms described in the Trust's
Declaration of Trust and in
<PAGE>
The Quest for Value Asset Builder Trust
September 12, 1994
Page 2
the manner referred to in the Registration Statement, will be duly and validly
issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the 1933 Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
s/Gordon Altman Butowsky
Weitzen Shalov & Wein
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 17, 1997, relating to the financial statements and financial highlights
of OCC Accumulation Trust - Equity Portfolio, OCC Accumulation Trust - Small Cap
Portfolio, OCC Accumulation Trust - Global Equity Portfolio, OCC Accumulation
Trust - Managed Portfolio, OCC Accumulation Trust - Bond Portfolio, OCC
Accumulation Trust - U.S. Government Income Portfolio and OCC Accumulation Trust
- - Money Market Portfolio, each of which appears in such Statement of Additional
Information, and to the incorporation by reference of our reports into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 15, 1997
<PAGE>
QUEST FOR VALUE ASSET BUILDER TRUST
Oppenheimer Tower
World Financial Center
New York, NY 10281
September 7, 1994
Quest for Value Advisors
Oppenheimer Tower
World Financial Center
New York, NY 10281
Dear Sirs:
In connection with your purchase today of an aggregate of 100,000 shares of
common stock of the Money Market Portfolio of the Quest for Value Asset Builder
Trust (the "Trust"), for $100,000, you hereby represent and confirm that you
have acquired such securities for investment for your own account, with no
present intention of redeeming, reselling or otherwise distributing the same.
It is mutually agreed that the aforementioned shares purchased by you
cannot be sold, assigned, or transferred, except upon redemption by Quest for
Value Advisors.
Furthermore, you hereby confirm that you are party to no arrangement,
agreement or understanding regarding the Trust or its securities, with the
Trust, Quest for Value Distributors or any other person, made in consideration
of your purchase of the aforementioned shares.
If the foregoing correctly expresses your understanding and our agreement,
please so indicate by signing the accompanying copy of this letter and return
the same to us.
A copy of the Declaration of Trust of Quest for Value Asset Builder Trust
is on file with the Secretary of the Commonwealth of Massachusetts and this
Agreement is executed on behalf of the Trustees of the Trust as Trustees and not
individually, and the obligations hereunder are not binding upon any of the
Trustees or shareholders of the Trust individually but are binding only upon the
assets and the property of the Trust.
Very truly yours,
QUEST FOR VALUE ASSET BUILDER TRUST
By: s\ Sheldon Siegel
-----------------------------------
Name: Sheldon Siegel
Title: Treasurer
Confirmed and Agreed:
QUEST FOR VALUE ADVISORS
By: s\ Bernard H. Garil
----------------------------
Name: Bernard H. Garil
Title: President
<PAGE>
OCC Accumulation Trust
Total Return Calculations (includes reinvestment of all dividends)
For the one year ended December 31, 1996
<TABLE>
<CAPTION>
Global
Equity Managed Small Cap U.S. Gov't Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Value $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Value $1,233.63 $1,227.74 $1,187.22 $1,030.17 $1,150.15
Total return for the period 23.36% 22.77% 18.72% 3.02% 15.02%
Average annual return for
the period 23.36% 22.77% 18.72% 3.02% 15.02%
Dividends declared
during the period $0.713502 $0.677912 $0.892551 $0.553049 $0.122550
<CAPTION>
For the five years ended December 31, 1996
Global
Equity Managed Small Cap U.S. Gov't Equity
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Value $1,000.00 $1,000.00 $1,000.00 N/A N/A
Ending Value $2,261.10 $2,401.63 $1,966.28 N/A N/A
Total return for the period 126.11% 140.16% 96.63% N/A N/A
Average annual return for
the period 17.70% 19.13% 14.46% N/A N/A
Dividends declared
during the period $2.548012 $3.311331 $4.787179 N/A N/A
<CAPTION>
Inception through December 31, 1996
Global
Equity Managed Small Cap U.S. Gov't Equity
---------------------------------------------------------------------
Inception date 01-Aug-88 01-Aug-88 01-Aug-88 03-Jan-95 01-Mar-95
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Value $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
Ending Value $3,626.38 $4,675.54 $3,169.58 $1,165.47 $1,367.06
Total return for the period 262.64% 367.55% 216.96% 16.55% 36.71%
Average annual return for
the period 16.52% 20.09% 14.67% 7.97% 18.51%
Dividends declared
during the period $3.193012 $4.674631 $5.524179 $1.210194 $0.397875
</TABLE>
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SEVEN-DAY YIELD 12/31/96
<TABLE>
<CAPTION>
DAILY
DIVIDEND
DATE RATE
- ---- --------
<C> <C> <C> <C>
12/25/96 0.0001218
12/26/96 0.0001218
12/27/96 0.0001224
12/28/96 0.0001226
12/29/96 0.0001226
12/30/96 0.0001226
12/31/96 0.0001232
---------
0.0008570
---------
---------
SEVEN-DAY
BASE PERIOD
RETURN ENDING SEVEN-DAY
12/31/96 X 365/7 = CURRENT YIELD
- -------- ----- -------------
0.000857 4.47%
-------------
-------------
ONE PLUS RAISED TO A
SEVEN-DAY POWER OF 365/7
BASE PERIOD AND SUBTRACT 1
RETURN ENDING FROM THE SEVEN-DAY
12/31/96 X RESULT = EFFECTIVE YIELD
- -------- -------------- ---------------
1.000857 4.57%
---------------
---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SEVEN-DAY YIELD ( without management fee waiver) 12/31/96
DAILY
DIVIDEND
DATE RATE
- -------- ----------
<S> <C> <C> <C> <C>
12/25/96 0.0001193
12/26/96 0.0001193
12/27/96 0.0001199
12/28/96 0.0001201
12/29/96 0.0001201
12/30/96 0.0001201
12/31/96 0.0001213
---------
0.0008401
---------
---------
SEVEN-DAY
BASE PERIOD
RETURN ENDING SEVEN-DAY
12/31/96 X 365/7 = CURRENT YIELD
- ------------- ----- -------------
0.0008401 4.38%
-------------
-------------
ONE PLUS RAISED TO A
SEVEN-DAY POWER OF 365/7
BASE PERIOD AND SUBTRACT 1
RETURN ENDING FROM THE SEVEN-DAY
12/31/96 X RESULT = EFFECTIVE YIELD
- --------- -------------- ---------------
1.0008401 4.48%
---------------
---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
S.E.C. 30 DAY STANDARD YIELD CALCULATION - 12/31/96
COMPONENTS:
<S> <C>
INCOME $ 17,090.82
EXPENSES $ 2,782.95
MAXIMUM OFFERING PRICE $ 10.38
AVERAGE SHARES OUTSTANDING 324,110.063
YIELD = 5.16%
<CAPTION>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
S.E.C. 30 DAY STANDARD YIELD CALCULATION (without management fee waiver) - 12/31/96
COMPONENTS:
<S> <C>
INCOME $ 17,090.82
EXPENSES $ 3,613.53
MAXIMUM OFFERING PRICE $ 10.38
AVERAGE SHARES OUTSTANDING 324,110.063
</TABLE>
YIELD = 4.86%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 1
<NAME> EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 16492938
<INVESTMENTS-AT-VALUE> 20235081
<RECEIVABLES> 27967
<ASSETS-OTHER> 883
<OTHER-ITEMS-ASSETS> 114721
<TOTAL-ASSETS> 20378652
<PAYABLE-FOR-SECURITIES> 494608
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41046
<TOTAL-LIABILITIES> 535654
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15239526
<SHARES-COMMON-STOCK> 659810
<SHARES-COMMON-PRIOR> 360689
<ACCUMULATED-NII-CURRENT> 188895
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 672434
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3742143
<NET-ASSETS> 19842998
<DIVIDEND-INCOME> 185285
<INTEREST-INCOME> 137420
<OTHER-INCOME> 0
<EXPENSES-NET> 133810
<NET-INVESTMENT-INCOME> 188895
<REALIZED-GAINS-CURRENT> 672433
<APPREC-INCREASE-CURRENT> 2218378
<NET-CHANGE-FROM-OPS> 3079706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (111781)
<DISTRIBUTIONS-OF-GAINS> (223969)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9184397
<NUMBER-OF-SHARES-REDEEMED> (1452087)
<SHARES-REINVESTED> 335750
<NET-CHANGE-IN-ASSETS> 10807016
<ACCUMULATED-NII-PRIOR> 111781
<ACCUMULATED-GAINS-PRIOR> 223970
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154724
<AVERAGE-NET-ASSETS> 14669645
<PER-SHARE-NAV-BEGIN> 25.05
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 5.52
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (0.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 30.07
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 2
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 31050263
<INVESTMENTS-AT-VALUE> 34305482
<RECEIVABLES> 13406
<ASSETS-OTHER> 1207
<OTHER-ITEMS-ASSETS> 8758
<TOTAL-ASSETS> 34328853
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72182
<TOTAL-LIABILITIES> 72182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29183006
<SHARES-COMMON-STOCK> 1515250
<SHARES-COMMON-PRIOR> 803674
<ACCUMULATED-NII-CURRENT> 226925
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1591521
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3255219
<NET-ASSETS> 34256671
<DIVIDEND-INCOME> 227354
<INTEREST-INCOME> 199837
<OTHER-INCOME> 0
<EXPENSES-NET> 200266
<NET-INVESTMENT-INCOME> 226925
<REALIZED-GAINS-CURRENT> 1679412
<APPREC-INCREASE-CURRENT> 2142715
<NET-CHANGE-FROM-OPS> 4049052
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (211870)
<DISTRIBUTIONS-OF-GAINS> (544700)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17604938
<NUMBER-OF-SHARES-REDEEMED> (3401674)
<SHARES-REINVESTED> 756533
<NET-CHANGE-IN-ASSETS> 18252279
<ACCUMULATED-NII-PRIOR> 211870
<ACCUMULATED-GAINS-PRIOR> 456809
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 165735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 222718
<AVERAGE-NET-ASSETS> 22131648
<PER-SHARE-NAV-BEGIN> 19.91
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.45
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.64)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.61
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 3
<NAME> MANAGED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 141731616
<INVESTMENTS-AT-VALUE> 181343196
<RECEIVABLES> 1576906
<ASSETS-OTHER> 7932
<OTHER-ITEMS-ASSETS> 6937
<TOTAL-ASSETS> 182934971
<PAYABLE-FOR-SECURITIES> 1897082
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309795
<TOTAL-LIABILITIES> 2206877
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132315059
<SHARES-COMMON-STOCK> 4991370
<SHARES-COMMON-PRIOR> 3290749
<ACCUMULATED-NII-CURRENT> 2161818
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6639637
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39611580
<NET-ASSETS> 180728094
<DIVIDEND-INCOME> 1924873
<INTEREST-INCOME> 1333194
<OTHER-INCOME> 0
<EXPENSES-NET> 1096248
<NET-INVESTMENT-INCOME> 2161819
<REALIZED-GAINS-CURRENT> 6639637
<APPREC-INCREASE-CURRENT> 18285659
<NET-CHANGE-FROM-OPS> 27087115
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1378070)
<DISTRIBUTIONS-OF-GAINS> (878874)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 79297599
<NUMBER-OF-SHARES-REDEEMED> (24844767)
<SHARES-REINVESTED> 2256944
<NET-CHANGE-IN-ASSETS> 81539947
<ACCUMULATED-NII-PRIOR> 1378069
<ACCUMULATED-GAINS-PRIOR> 878874
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 972381
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1107528
<AVERAGE-NET-ASSETS> 130347107
<PER-SHARE-NAV-BEGIN> 30.14
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 6.31
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (0.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.21
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 4
<NAME> BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2402223
<INVESTMENTS-AT-VALUE> 2412551
<RECEIVABLES> 32400
<ASSETS-OTHER> 393
<OTHER-ITEMS-ASSETS> 71315
<TOTAL-ASSETS> 2516659
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19213
<TOTAL-LIABILITIES> 19213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2476279
<SHARES-COMMON-STOCK> 262938
<SHARES-COMMON-PRIOR> 428741
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10839
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10328
<NET-ASSETS> 2497446
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 323750
<OTHER-INCOME> 0
<EXPENSES-NET> 48224
<NET-INVESTMENT-INCOME> 275526
<REALIZED-GAINS-CURRENT> 10977
<APPREC-INCREASE-CURRENT> (184990)
<NET-CHANGE-FROM-OPS> 101513
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (275526)
<DISTRIBUTIONS-OF-GAINS> (75648)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1066456
<NUMBER-OF-SHARES-REDEEMED> (2954763)
<SHARES-REINVESTED> 350959
<NET-CHANGE-IN-ASSETS> (1787009)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 75510
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24157
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 67976
<AVERAGE-NET-ASSETS> 4831393
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> (0.34)
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> (0.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.50
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 5
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5283568
<INVESTMENTS-AT-VALUE> 5283568
<RECEIVABLES> 2235
<ASSETS-OTHER> 331
<OTHER-ITEMS-ASSETS> 10094
<TOTAL-ASSETS> 5296228
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17186
<TOTAL-LIABILITIES> 17186
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5279055
<SHARES-COMMON-STOCK> 5279054
<SHARES-COMMON-PRIOR> 4356037
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5279042
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 222268
<OTHER-INCOME> 0
<EXPENSES-NET> 40852
<NET-INVESTMENT-INCOME> 181416
<REALIZED-GAINS-CURRENT> (14)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 181402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (181416)
<DISTRIBUTIONS-OF-GAINS> (46)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6146104
<NUMBER-OF-SHARES-REDEEMED> (5405790)
<SHARES-REINVESTED> 182704
<NET-CHANGE-IN-ASSETS> 922958
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 47
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16388
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53119
<AVERAGE-NET-ASSETS> 4097126
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 6
<NAME> U.S. GOVERNMENT INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3346608
<INVESTMENTS-AT-VALUE> 3362174
<RECEIVABLES> 69539
<ASSETS-OTHER> 203
<OTHER-ITEMS-ASSETS> 11662
<TOTAL-ASSETS> 3443578
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21580
<TOTAL-LIABILITIES> 21580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3414323
<SHARES-COMMON-STOCK> 329735
<SHARES-COMMON-PRIOR> 135799
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7891)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15566
<NET-ASSETS> 3421998
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 153307
<OTHER-INCOME> 0
<EXPENSES-NET> 23254
<NET-INVESTMENT-INCOME> 130053
<REALIZED-GAINS-CURRENT> (7891)
<APPREC-INCREASE-CURRENT> (26424)
<NET-CHANGE-FROM-OPS> 95738
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (130053)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2180216
<NUMBER-OF-SHARES-REDEEMED> (297024)
<SHARES-REINVESTED> 130663
<NET-CHANGE-IN-ASSETS> 1979540
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14797
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 57750
<AVERAGE-NET-ASSETS> 2466244
<PER-SHARE-NAV-BEGIN> 10.62
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.24)
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 7
<NAME> GLOBAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 15167243
<INVESTMENTS-AT-VALUE> 16561209
<RECEIVABLES> 128254
<ASSETS-OTHER> 483
<OTHER-ITEMS-ASSETS> 335783
<TOTAL-ASSETS> 17025729
<PAYABLE-FOR-SECURITIES> 3696
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49545
<TOTAL-LIABILITIES> 53241
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15580131
<SHARES-COMMON-STOCK> 1282602
<SHARES-COMMON-PRIOR> 248946
<ACCUMULATED-NII-CURRENT> 2107
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1390250
<NET-ASSETS> 16972488
<DIVIDEND-INCOME> 126858
<INTEREST-INCOME> 59746
<OTHER-INCOME> 0
<EXPENSES-NET> 113240
<NET-INVESTMENT-INCOME> 73364
<REALIZED-GAINS-CURRENT> 78267
<APPREC-INCREASE-CURRENT> 1247855
<NET-CHANGE-FROM-OPS> 1399486
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60776)
<DISTRIBUTIONS-OF-GAINS> (89998)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16110547
<NUMBER-OF-SHARES-REDEEMED> (3428866)
<SHARES-REINVESTED> 150774
<NET-CHANGE-IN-ASSETS> 14081167
<ACCUMULATED-NII-PRIOR> 4127
<ACCUMULATED-GAINS-PRIOR> (2877)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71811
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 166376
<AVERAGE-NET-ASSETS> 9072948
<PER-SHARE-NAV-BEGIN> 11.61
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 1.70
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.23
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
