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As filed with the Securities and Exchange Commission on July __, 1997
Registration No. 33-78944
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 4 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6
OCC ACCUMULATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE WORLD FINANCIAL CENTER, NEW YORK, NY 10281
(Address of Principal Executive Offices)
(212) 374-1600
(Registrant's Telephone Number)
Thomas E. Duggan, Esq.
Oppenheimer Capital
One World Financial Center
New York, NY 10281
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to [ ] on May 1, 1997 pursuant to
paragraph (b) paragraph (b)
[X] 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.
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CROSS REFERENCE SHEET
Form N-1A
Item
Part A Caption Prospectus
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1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description Investment Objectives and Policies;
of Registrant Additional Information on Investment
Objectives and Policies; Additional
Information
5. Management of the Fund Management of the Fund; Additional
Information; Investment Techniques
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Determination of Net Asset Value;
Securities Purchase of Shares; Dividends,
Distributions and Taxes; Additional
Information
7. Purchase of Securities Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
Part B Caption Statement of Additional Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not Applicable
History
13. Investment Objectives and Investment of Assets; Investment
Policies Restrictions
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14. Management of the Fund Trustees and Officers
15. Control Persons and Trustees and Officers;
Principal Holders of Control Persons
Securities
16. Investment Advisory and Investment Management and Other
Other Services Services; Additional Information
17. Brokerage Allocation Investment Management and Other
Services
18. Capital Stock and Other Additional Information
Securities
19. Purchase, Redemption and Determination of Net Asset Value
Pricing of Securities
20. Tax Status Investment of Assets; Dividends,
Distributions and Taxes; Additional
Information
21. Underwriters Additional Information
22. Calculations of Performance Portfolio Yield and Total Return
Data Information
23. Financial Statements Financial Statements
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September __, 1997
Supplement to the
Prospectus dated May 1, 1997 of
OCC Accumulation Trust
On September __, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with $110 billion in assets under management through various
subsidiaries, and its affiliate Thomson Advisory Group Inc. ("TAG") acquired
control of Oppenheimer Capital and its subsidiary OpCap Advisors, the Manager of
OCC Accumulation Trust (the "Trust") and a new Advisory Agreement (on identical
terms as the previous Advisory Agreement) between the Trust and OpCap Advisors
became effective. The new Advisory Agreement was approved by the shareholders
of each Portfolio of the Trust at a Special Meeting of Shareholders held on
_____ __, 1997.
PIMCO Partners, G.P. ("PIMCO GP") owns approximately 42.83% and 66.37%
respectively (and owns a majority of the voting stock of TAG, which owns
approximately 14.94% and 25.06%, respectively), of the total outstanding Class A
and Class B units of limited partnership interest ("Units") of PIMCO Advisors
and is PIMCO Advisors' sole general partner. PIMCO GP is a California general
partnership with two general partners. The first of these is Pacific Investment
Management Company, which is a California Corporation and is wholly-owned by
Pacific Financial Asset Management Company, a direct subsidiary of Pacific
Mutual Life Insurance Company ("Pacific Mutual").
PIMCO Partners L.L.C. ("PPLLC"), a California limited liability company, is
the second, and managing general partner of PIMCO GP. PPLLC's members are the
Managing Directors (the "PIMCO Managers") of Pacific Investment Management
Company, a subsidiary of PIMCO Advisors (the "PIMCO Subpartnership"). The PIMCO
Managers are: William H. Gross, Dean S. Meiling, James F. Muzzy, William F.
Podlich, III, Frank B. Rabinovitch, Brent R. Harris, John L. Hague, William S.
Thompson Jr., William C. Powers, David H. Edington, Benjamin Trosky, William R.
Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by an Operating Board and an Equity Board.
Governance matters are allocated generally to the Operating Board and the
Operating Board delegates to the Operating Committee the authority to manage
day-to-day operations of PIMCO Advisors. The Operating Board is composed of
twelve members, including the chief executive officer of the PIMCO
Subpartnership as Chairman and six PIMCO Managers designated by the PIMCO
Subpartnership.
The authority of PIMCO Advisors' Operating Board and Operating Committee
to take certain specified actions is subject to the approval of PIMCO Advisors'
Equity
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Board. Equity Board approval is required for certain major transactions (e.g.,
issuance of additional PIMCO Advisors' Units and appointment of PIMCO Advisors'
chief executive officer). In addition, the Equity Board has jurisdiction over
matters such as actions which would have material effect upon PIMCO Advisors'
business taken as a whole and (after an appeal from an Operating Board decision)
matters likely to have a material adverse economic effect on any subpartnership
of PIMCO Advisors. The Equity Board is composed of twelve members, including
the chief executive officer of PIMCO Advisors, three members designated by a
subsidiary of Pacific Mutual, the chairman of the Operating Board and two
members designated by PPLLC.
Because of its power to appoint (directly or indirectly) seven of the
twelve members of the Operating Board as described above, the PIMCO
Subpartnership may be deemed to control PIMCO Advisors. Because of direct or
indirect power to appoint 25% of the members of the Equity Board, (i) Pacific
Mutual and (ii) the PIMCO Managers and/or the PIMCO Subpartnership may each be
deemed, under applicable provisions of the Investment Company Act, to control
PIMCO Advisors. Pacific Mutual, the PIMCO Subpartnership and the PIMCO Managers
disclaim such control.
2
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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 20.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing, must be accompanied by a
current prospectus for the Variable Accounts and both should be retained for
future reference. A Statement of Additional Information dated 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
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TABLE OF CONTENTS
Page
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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 .............................................. 25
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PROSPECTUS SUMMARY
THE FUND The Fund is a Massachusetts business trust which
issues its shares in series as separate classes of
shares of beneficial interest. There are currently
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 three 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 the
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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 20).
PURCHASES AND
REDEMPTION OF SHARES Currently, shares of the Fund are sold at their net
asset value per share, without sales charge, for
allocation to the Variable Accounts as the
underlying investment for the Contracts.
Accordingly, the interest of the Contractowner with
respect to the Fund is subject to the terms of the
Contract as described in the accompanying Prospectus
for the Variable Accounts, which should be reviewed
carefully by a person considering the purchase of a
Contract. That Prospectus describes the
relationship between increases or decreases in the
net asset value of Fund shares and any distributions
on such shares, and the benefits provided under a
Contract. The rights of the Variable Accounts as
shareholders of the Fund should be distinguished
from the rights of a Contractowner which are
described in the Contract. As long as shares of the
Fund are sold for allocation to the Variable
Accounts, the terms "shareholder" or "shareholders"
in this Prospectus shall refer to the Variable
Accounts. Shares are redeemed at their respective
net asset values as next determined after receipt of
proper notice of redemption.
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus, the Additional Statement, and the accompanying
Prospectus for the Variable Accounts.
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio of the Fund are
described below. Investment objectives of each Portfolio are fundamental
policies which cannot be changed for any Portfolio without a majority vote of
the shareholders of that Portfolio; investment policies are not fundamental and
may be adjusted by the Manager at any time, usually in response to its
perception of developments in the securities markets. The extent to which a
Portfolio will be able to achieve its distinct investment objectives depends
upon the Manager's ability to evaluate and develop the information it receives
into a successful investment program. Although each Portfolio will be managed
by experienced professionals, there can be no assurance that any Portfolio will
achieve its investment objectives. 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
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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.
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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.
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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.
<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.
<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
<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.
<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
<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
<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
<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.
<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
<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.
<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.
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.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MANAGED, SMALL CAP, U.S. GOVERNMENT
INCOME AND GLOBAL EQUITY PORTFOLIOS
OF OCC ACCUMULATION TRUST(1),(2)
<TABLE>
<CAPTION>
Portfolio For the one year For the five year For the period from
period ended period ended inception to
December 31, 1996 December 31, 1996 December 31, 1996*
----------------- ----------------- -------------------
<S> <C> <C> <C>
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%
</TABLE>
*Inception date of the Global Equity Portfolio is March 1, 1995 and the
inception date of the U.S. Government Income Portfolio is January 3, 1995.
The Equity, Managed and Small Cap Portfolios commenced operations as part of
the Fund on September 16, 1994. The Old Trust commenced operations on
August 1, 1988.
(1)On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund
commenced operations. The total net assets for each of the Equity, Small Cap
and Managed Portfolios immediately after the transaction were $86,789,755,
$139,812,573 and $682,601,380, respectively, with respect to the Old Trust
and for each of the Equity, Small Cap and Managed Portfolios, $3,764,598,
$8,129,274 and $51,345,102 respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2)Reflects waivers of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager.
Without such waivers and reimbursements, the average annual total return
during the periods would have been lower.
In addition, reference in advertisements may be made to various indices,
including, without limitation, the S & P 500 Stock Index, the 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.
<PAGE>
The assets received by the Fund on the sale of shares of each Portfolio
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are allocated to each Portfolio, and constitute the
assets of such Portfolio. The assets of each Portfolio are required to be
segregated on the Fund's books of account. The Fund's Board of Trustees has
agreed to monitor the portfolio transactions and management of each of the
Portfolios and to consider and resolve any conflict that may arise.
VOTING. For matters affecting only one Portfolio, only the shareholders
of that Portfolio are entitled to vote. For matters relating to all the
Portfolios but affecting the Portfolios differently, separate votes by
Portfolio are required. Approval of an Investment Management Agreement and a
change in fundamental policies would be regarded as matters requiring
separate voting by each Portfolio. To the extent required by law, the
Variable Accounts will vote the shares of the Fund, or any Portfolio of the
Fund, held in the Variable Accounts in accordance with instructions from
Contractowners, as described under the caption "Voting Rights" in the
accompanying Prospectus for the Variable Accounts. Shares for which no
instructions are received as well as shares which the Manager or its parent,
Oppenheimer Capital, may own, will be voted in the same proportion as shares
for which instructions are received. The Fund does not intend to hold annual
meetings of shareholders. However, the Board of Trustees will call special
meetings of shareholders for action by shareholder vote as may be requested
in writing by holders of 10 percent or more of the outstanding shares of a
Portfolio or as may be required by applicable laws or the Declaration of
Trust pursuant to which the Fund has been organized.
Under Massachusetts law shareholders could, in certain circumstances, be
held personally liable as partners for Fund obligations. The Fund's
Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each instrument entered into or executed by the Fund.
The Declaration of Trust also provides for indemnification out of the Fund's
property for any shareholder held personally liable for any Fund obligation.
Thus, the risk of loss to a shareholder from being held personally liable for
obligations of the Fund is limited to the unlikely circumstance in which the
Fund itself would be unable to meet its obligations.
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets of the Fund is
State Street Bank and Trust Company, P.O. Box 8505, Boston, MA 02266-8505,
which also acts as transfer agent and shareholder servicing agent for the
Fund.
CONTRACTOWNERS INQUIRIES. Inquiries concerning the purchase and sale of
shares of the Fund, dividends, account statements and management and
investment policies of the Fund should be directed to the respective life
insurance companies which use the Fund as an investment vehicle for their
respective variable annuity and life insurance contracts.
<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-
<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.
<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, as
supplemented September __, 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 SEPTEMBER __, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
Investment of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Investment Management and Other Services . . . . . . . . . . . . . . . . . 24
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . 28
Dividends, Distribution and Taxes. . . . . . . . . . . . . . . . . . . . . 30
Portfolio Yield and Total Return Information . . . . . . . . . . . . . . . 30
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
liquidity of an investment in such obligations. The Money Market Portfolio will
not invest more than 5% of its total assets in collateralized mortgage
obligations. Investments will only be made in collateralized mortgage
obligations which are of high quality, as determined by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus (10% limit on illiquid investments for
Money Market Portfolio).
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing
3
<PAGE>
basis, OpCap Advisors (the "Manager") will consider the earning power,
cash flow and other liquidity ratios of the issuer, and its ability to pay
principal and interest on demand, including a situation in which all holders
of such notes made demand simultaneously. The Portfolios will not invest
more than 5% of their total assets in variable rate notes. Variable rate
notes are subject to the Portfolios' investment restrictions on illiquid
securities unless such notes can be put back to the issuer on demand within
seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. The
Portfolio may, within the limits set forth in the Prospectus, purchase bank
obligations which are fully insured as to principal by the FDIC. Currently, to
remain fully insured as to principal, these investments must be limited to
$100,000 per bank; if the principal amount and accrued interest together exceed
$100,000, the excess principal amount and accrued interest will not be insured.
Insured bank obligations may have limited marketability. Unless the Board of
Trustees determines that a readily available market exists for such obligations,
a Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus for each Portfolio (10% limit for
illiquid investments for Money Market Portfolio) unless such obligations are
payable at principal amount plus accrued interest on demand or within seven days
after demand.
LOWER RATED BONDS. Each Portfolio except for the Money Market Portfolio
may invest up to 5% of its assets in bonds rated below Baa3 by Moody's
Investors Service, Inc. ("Moody's") or BBB- by Standard & Poor's Corporation
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc.
("Duff"). These securities are commonly known as "junk bonds." Securities
rated less than Baa by Moody's or BBB- by S&P are classified as
non-investment grade securities and are considered speculative by those
rating agencies. It is the Fund's policy not to rely exclusively on ratings
issued by credit rating agencies but to supplement such ratings with the
Manager's own independent and ongoing review of credit quality. Junk bonds
may be issued as a consequence of corporate restructurings, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or
by smaller or highly leveraged companies. Although the growth of the high
yield securities market in the 1980s had paralleled a long economic
expansion, recently many issuers have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or
increase in interest rates is likely to have a negative effect on (i) the
high yield bond market, (ii) the value of high yield securities and (iii) the
ability of the securities' issuers to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. The market for junk bonds may be less liquid than the
market for investment grade bonds. In periods of reduced market liquidity,
junk bond prices may become more volatile and may experience sudden and
substantial price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such conditions,
a Portfolio may find it difficult to value its junk bonds accurately. Under
such conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily
on the judgment of the Fund's Board of Trustees. Prices for junk bonds also
may be affected by legislative and regulatory developments. For example, new
federal rules require that savings and loans gradually reduce their holdings
of high-yield securities. Also, from time to time, Congress has considered
legislation to restrict or eliminate the corporate tax deduction for interest
payments or to regulate corporate restructurings such as takeovers, mergers
or leveraged buyouts. Such legislation, if enacted, may depress the prices
of outstanding junk bonds.
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DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll
files for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, Small Cap and
Equity Portfolios may engage in options and futures. Information about the
options and futures transactions these Portfolios may enter into is set forth
below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified security, in
most cases the obligation is fulfilled by closing out the position. All futures
transactions are effected through a clearing house associated with the exchange
on which the contracts are traded. The Global Equity Portfolio may purchase and
sell futures contracts that are currently traded, or may in the future be
traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase, the sum of
initial margin deposits on futures and premiums paid on futures options would
exceed 5% of the Portfolio's total assets. This limitation is not a fundamental
policy.
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INFORMATION ON PUTS AND CALLS. The Small Cap and Equity Portfolios may
write calls on individual securities. The Global Equity Portfolio is authorized
to write covered put and call options and purchase put and call options on the
securities in which it may invest. When a portfolio writes a call, it receives
a premium and agrees to sell the callable securities to a purchaser of a
corresponding call during the call period (usually not more than 9 months) at a
fixed exercise price (which may differ from the market price of the underlying
securities) regardless of market price changes during the call period. If the
call is exercised, the portfolio forgoes any possible profit from an increase in
market price over the exercise price. A portfolio may, in the case of listed
options, purchase calls in "closing purchase transactions" to terminate a call
obligation. A profit or loss will be realized, depending upon whether the net of
the amount of option transaction costs and the premium received on the call
written is more or less than the price of the call subsequently purchased. A
profit may be realized if the call lapses unexercised, because the portfolio
retains the underlying security and the premium received. If, due to a lack of a
market, a portfolio could not effect a closing purchase transaction, it would
have to hold the callable securities until the call lapsed or was exercised. The
Fund's Custodian, or a securities depository acting for the Custodian, will act
as the portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC") in connection with listed calls, as to the securities on
which the portfolio has written calls, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the portfolio's
entering into a closing purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the portfolio will lose its
premium payment and the right to purchase the underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the securities underlying an option it has
written, in accordance with the terms of that option as written, a portfolio
could lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Portfolios will engage in OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the portfolio has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the portfolio assets used to "cover" the OTC option will be
considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the portfolio for writing the option plus
the amount, if any, of the option's intrinsic value, i.e., current market value
of the underlying securities minus the option's strike price.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
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the exercise price of the put are similar to those of writing a covered
call. The premium received on a put written by a portfolio represents a
profit, as long as the price of the underlying investment remains above the
exercise price. However, a portfolio has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the put
at the exercise price, even though the value of the investment may fall below
the exercise price. If the put expires unexercised, the portfolio (as
writer) realizes a gain in the amount of the premium. If the put is
exercised, the portfolio must fulfill its obligation to purchase the
underlying investment at the exercise price, which will usually exceed the
market value of the investment at that time. In that case, the portfolio may
incur a loss upon disposition, equal to the sum of the sale price of the
underlying investment and the premium received minus the sum of the exercise
price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the underlying
security, the Fund, on behalf of a portfolio, will maintain in a segregated
account at its Custodian liquid assets with a value equal to at least the
exercise price of the option. As a result, the portfolio forgoes the
opportunity of trading the segregated assets or writing calls against those
assets. As long as the portfolio's obligation as a put writer continues, the
portfolio may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring the portfolio to purchase the underlying
security at the exercise price. A portfolio has no control over when it may
be required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. This obligation terminates upon the earlier of the
expiration of the put, or the consummation by the portfolio of a closing
purchase transaction by purchasing a put of the same series as that
previously sold. Once a portfolio has been assigned an exercise notice, it
is thereafter not allowed to effect a closing purchase transaction.
A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
portfolio. The portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its expiration date and
the purchasing portfolio will lose the premium paid and the right to sell the
underlying securities; the put may, however, be sold prior to expiration
(whether or not at a profit). Purchasing a put on futures or securities not
held by it permits a portfolio to protect its securities holdings against a
decline in the market to the extent that the prices of the future or securities
underlying the put move in a similar pattern to the prices of a portfolio's
securities.
An option position may be closed out only on a market which provides
secondary trading for
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options of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. A portfolio's option activities
may affect its turnover rate and brokerage commissions. The exercise of calls
written by a portfolio may cause the portfolio to sell its securities to
cover the call, thus increasing its turnover rate in a manner beyond the
portfolio's control. The exercise of puts on securities or futures will
increase portfolio turnover. Although such exercise is within the
portfolio's control, holding a put might cause a portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in
connection with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Small Cap and Equity Portfolios may
purchase and write call and put options on futures contracts which are traded on
an exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right (in return for the premium paid) to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put) at a specified exercise price at any time during the
term of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option is accompanied
by delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract at
the time of exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Portfolio's losses from existing
options may to some extent be reduced or increased by changes in the value of
its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge the
Portfolio's holdings against the risk of a decline in securities prices.
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The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may be
required to make additional payments during the term of the contract to its
broker. Such payments would be required where during the term of a stock index
futures contract purchased by the Portfolio, the price of the underlying stock
index declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by the
Portfolio resulting in a net long position, an amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's custodian, for the benefit of the
Portfolio, to collateralize the position and thereby insure that the use of such
futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the price of the stock index future moves less than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective, but, if the price of the securities being hedged has moved in
an unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction this advantage will be partially offset by the future. If
the price of the futures moves more than the price of the stock the Portfolio
will experience a loss or a gain on the future which will not be completely
offset by movement in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the stock index futures,
the Portfolio may buy or sell stock index futures in a greater dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the prices of such securities has been greater than the historical
volatility of the index. Conversely, the Portfolio may buy or sell fewer stock
index futures contracts if the historical volatility of the price of the
securities being hedged is less than the historical volatility of the stock
index. It is possible that where the Portfolio has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the
Portfolio's securities may decline. If this occurred, the Portfolio would lose
money on the futures and also experience a decline in the value of its
securities. While this should occur, if at all, for a very brief period or to a
very small degree, the Manager believes that over time the value of a
diversified portfolio will tend to move in the same direction as the market
indices upon which
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the futures are based. It is also possible that if the Portfolio hedges
against the possibility of a decline in the market adversely affecting stocks
it holds and stock prices increase instead, the Portfolio will lose part or
all of the benefit of the increased value of its stock which it had hedged
because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Portfolio may also have to sell
securities at a time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, the value of stock index futures contracts as a
hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge a portfolio's
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of securities
will, in fact, correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
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REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. Another test is that less than 30% of its gross
income must be derived from gains realized on the sale of securities held for
less than three months. In connection with the 90% test, recent amendments to
the Internal Revenue Code specify that income from options, futures and other
gains derived from investments in securities is qualifying income under the 90%
test. Due to the 30% limitation, each Portfolio will limit the extent to which
it engages in the following activities, but except as otherwise set forth herein
or in the Prospectus, will not be precluded from them: (i) selling investments,
including futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Portfolio; (ii) writing or
purchasing calls on investments held less than three months; (iii) purchasing
calls or puts which expire in less than three months; (iv) effecting closing
transactions with respect to calls or puts purchased less than three months
previously; and (v) exercising puts or calls held by a Portfolio for less than
three months.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked to market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section
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1256 contracts sold by a portfolio during the year, and the resulting
gain or loss will be deemed to consist of 60% long-term capital gain or loss
and 40% short-term capital gain or loss. A portfolio may elect to exclude
certain transactions from the mark-to-market rule although doing so may have
the effect of increasing the relative proportion of short-term capital gain
(taxable as ordinary income) and/or increasing the amount of dividends that
must be distributed annually to meet income distribution requirements,
currently at 98%, to avoid payment of federal excise tax.
It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.
INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Small Cap and Managed Portfolios
may purchase foreign securities provided that they are listed on a domestic or
foreign securities exchange or represented by American depository receipts
listed on a domestic securities exchange or traded in a domestic or foreign
over-the-counter market. There is no limit on the amount of such foreign
securities that the Portfolios might acquire. These Portfolios will hold
foreign currency in connection with the purchase or sale of securities on a
foreign securities exchange. To the extent that foreign currency is so held,
there may be a risk due to foreign currency exchange rate fluctuations. Such
foreign currency and foreign securities will be held by the Fund's custodian
bank, or by a foreign branch of a U.S. bank, acting as subcustodian, on behalf
of the Portfolio. The custodian bank will hold such foreign securities pursuant
to such arrangements as are permitted by applicable foreign and domestic law and
custom.
12
<PAGE>
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control
regulations (e.g. currency blockage). The Portfolios may bear a transaction
charge in connection with the exchange of currency. There may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies are generally not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies. Most foreign stock markets have substantially less
volume than the New York Stock Exchange and securities of some foreign
companies are less liquid and more volatile than securities of comparable
domestic companies. There is generally less government regulation of foreign
stock exchanges, brokers, and listed companies than there is in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could adversely affect
investment in securities of issuers located in those countries. Individual
foreign economies may differ favorable or unfavorably from the United States
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. If it should become necessary, the Portfolios would
normally encounter greater difficulties in commencing a lawsuit against the
issuer of a foreign security than it would against a United States issuer.
INVESTMENTS IN EASTERN EUROPE. Investments in Eastern Europe are
speculative and involve a high degree of risk of loss. The emergence of Eastern
European capital markets is in part a function of the policies of the former
Gorbachev administration. With the recent change in power and restructuring of
the Soviet Union there is no assurance that such markets will continue to
constitute a viable investment opportunity for the Portfolios and there may be a
high degree of risk of expropriation without compensation. The governments of a
number of Eastern European countries previously expropriated large quantities of
private property. The claims of many property owners against those governments
were never finally settled. There is no assurance that such expropriation will
not occur again. If such expropriation were to recur, the Portfolios could lose
all or a substantial portion of their investments in such countries. Further,
no accounting standards comparable to those in the U.S. exist in Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into United States dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders of
the Portfolios. Presently the Global Equity Portfolio is the only Portfolio
which intends to invest in these types of securities.
The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such countries. These authorities may not be qualified to
act as foreign custodians under the 1940 Act and as a result, the Portfolios
would not be able to invest in the countries in the absence of exemptive relief
from the Securities and Exchange Commission. In addition, the risk of loss
through government confiscation may be increased in such countries.
FOREIGN CURRENCY TRANSACTIONS. The Global Equity, Equity, Small Cap and
Managed Portfolios do not intend to speculate in foreign currency. When a
Portfolio agrees to purchase or sell a security in a foreign market it will
generally be obligated to pay or entitled to receive a specified amount of
foreign currency and will then generally convert dollars to that currency in the
case of a purchase or that currency to dollars in the case of a sale. The
Global Equity, Equity, Small Cap and
13
<PAGE>
Managed Portfolios intend to conduct their foreign currency exchange
transactions on a spot basis (i.e., cash) at the spot rate prevailing in the
foreign currency exchange market or through entering into forward foreign
currency contracts ("forward contracts") to purchase or sell foreign
currencies. Such Portfolios may enter into forward contracts in order to
lock in the U.S. dollar amount they must pay or expect to receive for a
security they have agreed to buy or sell or with respect to their positions
when the Portfolios believe that a particular currency may change unfavorably
compared to the U.S. dollar. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to
the value of the Portfolios' total assets committed to the consummation of
any such contract in such account and if the value of the securities placed
in the separate accounts decline, additional cash or securities will be
placed in the accounts on a daily basis so that the value of the accounts
will equal the amount of the Portfolios' commitments with respect to such
forward contracts. If, rather than cash, portfolio securities are used to
secure such a forward contract, on the settlement of the forward contract for
delivery by the Portfolios of a foreign currency, the Portfolios may either
sell the portfolio security and make delivery of the foreign currency, or
they may retain the security and terminate their contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract
obligating them to purchase, on the same settlement date, the same amount of
foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, futures contracts that are not "regulated futures contracts," and
from unlisted options will be treated as ordinary income or loss under
Internal Revenue Code Section 988. Also, certain foreign exchange gains or
losses derived with respect to fixed-income securities are also subject to
Section 988
14
<PAGE>
treatment. In general, therefore, Internal Revenue Code Section 988 gains or
losses will increase or decrease the amount of the Portfolio's investment
company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the
Portfolio's net capital gain. Additionally, if Internal Revenue Code Section
988 losses exceed other investment company taxable income during a taxable
year, the Portfolio would not be able to make any ordinary income
distributions.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees in accordance with such Rules. Such determination
will be made pursuant to such Rules following a consideration of a number of
factors, including, but not limited to, the reliability and financial stability
of the institution; the ability of the institution to perform custodial services
for the Fund; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of the
Portfolio's assets. However, no assurances can be given that the trustees'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes (including
currency blockage), confiscations or any other loss of assets that would affect
assets of the Portfolio will not occur, and shareholders bear the risk of losses
arising from those or other similar events.
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.
FOREIGN AND DOMESTIC SECURITY SELECTION PROCESS. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets,
15
<PAGE>
security selection is designed to reduce risk through a value oriented
approach in which emphasis is placed on identifying well-managed companies
which, in the case of the Global Equity Portfolio, represent exceptional
values in terms of such factors as assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively. To the extent a Portfolio invests in securities in bearer form it
may be more difficult to recover securities in the event such securities are
lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. The U.S. Treasury has issued
proposed regulations which establish a mark-to-market regime that allows a
regulated investment company ("RIC") to avoid most, if not all, of the
difficulties posed by the PFIC rules. In any event, it is not anticipated that
any taxes on a Portfolio with respect to investments in PFIC's would be
significant.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions applicable to the Portfolios
are described in the Prospectus. The following investment restrictions have
been adopted by the Fund as fundamental policies which cannot be changed without
the vote of a majority of the outstanding voting securities of that Portfolio.
Such a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at the meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio. For the purposes of the following restrictions and those contained
in the Prospectus: (i) all percentage limitations apply immediately after a
purchase or initial investment, unless specifically stated otherwise; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total assets does not require
elimination of any security from the Portfolio.
ADDITIONAL RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS. Each Portfolio of
the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in
16
<PAGE>
repurchase agreements; or (c) by lending its portfolio securities, not in
excess of 33% of the value of a Portfolio's total assets, made in accordance
with guidelines adopted by the Fund's Board of Trustees, including
maintaining collateral from the borrower equal at all times to the current
market value of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
3. Pledge its assets or assign or otherwise encumber them in excess of
10% of its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in the
Prospectus.
4. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
5. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
6. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
7. Engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
8. Invest for the purposes of exercising control or management of another
company.
9. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY. The Money
Market Portfolio may not:
1. Invest in securities other than those listed in the description of its
investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year from the date of
purchase, except that where securities are held subject to repurchase agreements
having a term of one year or less from the date of delivery, the securities
subject to the agreement may have maturity dates in excess of one year from date
of delivery.
17
<PAGE>
3. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities).
RESTRICTIONS APPLICABLE TO THE EQUITY, MANAGED, GLOBAL EQUITY AND SMALL CAP
PORTFOLIOS ONLY. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Managed, Global Equity and/or Small
Cap Portfolios; however, each Portfolio will attempt to dispose in an orderly
fashion of any securities received under these circumstances to the extent
that such securities, together with other unmarketable securities, exceed 15%
of that Portfolio's total assets.
TRUSTEES AND OFFICERS
The trustees and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. The address
of each is One World Financial Center, New York, New York 10281, except as
noted. As of June 20, 1997, the trustees and officers of the Fund as a group
owned none of its outstanding shares.
JOSEPH M. LA MOTTA, CHAIRMAN OF THE BOARD OF TRUSTEES AND PRESIDENT*
Chairman 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
Osterville, Massachusetts 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, and
OCC Cash Reserves, Inc.; Trustee of OCC Accumulation Trust and Oppenheimer
Quest for Value Funds, each of which is an open-end investment company.
18
<PAGE>
THOMAS W. COURTNEY, C.F.A., TRUSTEE
P. O. Box 8186
Naples, Florida 33941
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund, a private venture capital fund; former
President of Federated Investment Counseling, Inc.; Trustee of Cash Assets
Trust, a money market fund; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc. Rochester Fund Municipals, Rochester Portfolio Series Limited Term New York
Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, OCC Cash
Reserves, Inc., and Trustee of Oppenheimer Quest for Value Funds, each of which
is an open-end investment company; former President of Boston Company
Institutional Investors, Inc.; former Director of The Financial Analysts
Federation; Trustee of Hawaiian Tax-Free Trust and Tax Free Trust of Arizona,
tax-exempt bond funds; and Director of several privately owned corporations.
LACY B. HERRMANN, TRUSTEE
380 Madison Avenue, Suite 2300
New York, New York 10017
President and Chairman of the Board of Aquila Management Corporation
(since 1984), the sponsoring organization and Administrator and/or Advisor or
Sub-Advisor to the following open-end investment companies, and Chairman of
the Board of Trustees and President of each: Churchill Cash Reserves Trust
(since 1985), Short Term Asset Reserves (from 1984 to 1993), Pacific Capital
Cash Assets Trust (since 1984), Pacific Capital U.S. Treasuries Cash Assets
Trust (since 1988), Pacific Capital Tax-Free Cash Assets Trust (since 1988),
Prime Cash Fund (from 1982 - 1996), Oxford Cash Management Fund (1982-1988)
and Trinity Liquid Assets Trust (1982 - 1985), each of which is a money
market fund, Churchill Tax-Free Fund of Kentucky (since 1986), Tax-Free Fund
of Colorado (since 1986), Tax-Free Trust of Oregon (since 1985), Tax-Free
Trust of Arizona (since 1985), Tax-Free Fund For Utah (since 1992)
Narragansett Insured Tax-Free Income Fund (since 1992), and Hawaiian Tax-Free
Trust (since 1984), each of which is a tax-free municipal bond fund, and of
Aquila Rocky Mountain Equity Fund (since 1994) and Aquila Cascadia Equity
Fund (since 1996), each of which is a regional equity fund; Vice President,
Director, Secretary, and formerly Treasurer of Aquila Distributors, Inc.
(since 1981), distributor of each of the above funds; President and Chairman
of the Board of Trustees of Capital Cash Management Trust (CCMT), a money
market fund (since 1981) and an Officer and Trustee/Director of its
predecessors (since 1974); President and Director of STCM Management Company,
Inc., sponsor and Subadvisor to CCMT; Director, Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital
Value Fund, Inc. Rochester Fund Municipals, Rochester Portfolio Series
Limited Term New York Municipals and Bond Fund Series, Oppenheimer Bond Fund
for Growth, OCC Cash Reserves, Inc., Trustee of Oppenheimer Quest for Value
Funds, ^ each of which is an open-end investment company; Trustee of Brown
University since 1990; actively involved for many years in leadership roles
with university, school, and charitable organizations
19
<PAGE>
GEORGE LOFT, TRUSTEE
51 Herrick Road
Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Capital Value Fund, Inc., Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Bond Fund for Growth, Oppenheimer Quest Global Value
Fund, Inc., Trustee of Oppenheimer Quest for Value Funds ^, all of which are
open-end investment companies.^
GAVIN ALBERT, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President of Oppenheimer Capital since December 1996 and securities analyst
with Oppenheimer Capital since 1994; management consultant with EDS Energy
Management in 1994; attended Vanderbilt University Business School for September
1992 to May 1994 (Masters of Business Administration degree in finance and
management).
ROBERT J. BLUESTONE, VICE PRESIDENT
Managing Director, Oppenheimer Capital; Vice President, OCC Cash Reserves, Inc.,
an open-end investment company.
TIMOTHY CURRO, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President of Oppenheimer Capital since November 1996; general partner of
Value Holdings, L.P. an investment partnership from May 1995 to November 1996;
Vice President in the Equity Research Department of UBS Securities Inc. from
June 1994 to May 1995 and from January 1991 through February 1993 and a partner
with Omega Advisors, Inc. from March 1993 to March 1994.
PIERRE DAVIRON, VICE PRESIDENT AND PORTFOLIO MANAGER
President and Chief Investment Officer, Oppenheimer Capital International, a
division of Oppenheimer Capital and a Managing Director of Oppenheimer Capital.
Previously Chairman and Chief Executive Officer at Indosuez Gartmore Asset
Management, a division of Banque Indosuez, Paris, France. Previously Managing
Director in Mergers and Acquisitions at J.P. Morgan.
BERNARD H. GARIL, VICE PRESIDENT
President and Chief Operating Officer of OpCap Advisors and a Managing Director
of Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc., an open-end
investment company.
RICHARD GLASEBROOK, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
JOHN GIUSIO, VICE PRESIDENT
20
<PAGE>
Vice President, Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc.,
an open-end investment company; formerly Vice President, Salomon Brothers.
BENJAMIN GUTSTEIN, VICE PRESIDENT & PORTFOLIO MANAGER
Assistant Vice President, Oppenheimer Capital since 1996; joined the firm in
1993; prior thereto, associate at Lehman Brothers.
VIKKI HANGES, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; Assistant Vice President, Oppenheimer
Capital, 1987-1992.
DEBORAH KABACK, SECRETARY
Senior Vice President and Deputy General Counsel, Oppenheimer Capital; Secretary
of OCC Cash Reserves, Inc.^ , an open-end investment company.
TIMOTHY MCCORMACK, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; formerly Security Analyst at U.S. Trust
Co.; formerly Security Analyst at Gabelli and Company.
RICHARD L. PETEKA, ASSISTANT TREASURER
Vice President, Oppenheimer Capital; Assistant Treasurer of OCC Cash Reserves,
Inc., an open-end investment company.
EILEEN ROMINGER, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital.
SHELDON M. SIEGEL, TREASURER
Managing Director and Treasurer, Oppenheimer Capital; Treasurer of OpCap
Advisors; Treasurer of OCC Cash Reserves, Inc., an open-end investment company.
REMUNERATION OF OFFICERS AND TRUSTEES. All officers of the Fund are
officers of Oppenheimer Capital and will receive no salary or fee from the Fund.
The following table sets forth the aggregate compensation paid by the Fund to
each of the Trustees during its fiscal year ended December 31, 1996 and the
aggregate compensation paid to each of the Trustees by all of the funds in the
Advisor's Fund Complex during each such fund's 1996 fiscal year. The Managed
Portfolio and the Small Cap Portfolio of the Fund were the only Portfolios of
the Fund that paid fees to the Trustees.
21
<PAGE>
Name of Trustee Aggregate Pension or Estimated Annual Total
of the Fund Compensation Retirement Benefits upon Compensation
from the Fund Benefits Retirement from the Fund
Accrued as and the Fund
Part of Fund Complex
Expenses
Paul Clinton $7,050 0 0 $71,294.25
Thomas Courtney $6,600 0 0 $68,594.25
Lacy Herrmann $7,050 0 0 $73,556.75
Joseph La Motta 0 0 0 0
George Loft $7,050 0 0 $80,656.75
For the purpose of the chart above "Fund Complex" includes the Fund, other
funds advised by the Manager and the Oppenheimer Quest Funds for which the
Manager serves as subadviser.
CONTROL PERSONS
As of June 20, 1997, shares of the Portfolios were held by Oppenheimer
Capital and the Variable Accounts of the following insurance companies, with the
figures beneath each Portfolio representing that company's holdings as a
percentage of each Portfolio's total outstanding shares.
22
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF JUNE 20, 1997(1)
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED
MARKET INCOME EQUITY CAP
- --------------------------------------------------------------------------------
The Mutual Life
Insurance Company 58.74% 35.38% --- 13.92% 7.30% 21.54%
of New York (New
York, NY) & The
MONY Life
Insurance Company
of America
(New York, NY)
- --------------------------------------------------------------------------------
Provident Mutual
Life Insurance --- --- --- 68.74% 28.37% 19.74%
Company
(Philadelphia, PA) &
Providentmutual Life
and Annuity
Company of America
(Newark, DE)
- --------------------------------------------------------------------------------
Connecticut General
Life Insurance 39.11% --- 100.00% 17.34% 15.13 26.13%
Company & CIGNA
Life Insurance
Company
(Hartford, CT)
- --------------------------------------------------------------------------------
Providian Life and
Health Insurance --- 28.52% --- --- 20.48% 8.12%
Company
(Frazer, PA)
- --------------------------------------------------------------------------------
American Enterprise
Life Insurance --- 29.80% --- --- 2.24%
Company
(Indianapolis, Ind.)
- --------------------------------------------------------------------------------
Oppenheimer Capital
(New York, NY) 2.15% 6.30% --- --- --- ---
- --------------------------------------------------------------------------------
IL Annuity and
Insurance Company --- --- --- --- 1.99% 1.34%
(Indianapolis, IN)
- --------------------------------------------------------------------------------
PRUCO Life
Insurance Company --- --- --- --- 26.73% 20.89%
of New Jersey and
PRUCO Life
Insurance Company
(Newark, NJ)
- --------------------------------------------------------------------------------
23
<PAGE>
- -Company does not offer shares of the Portfolio of the Fund
(1)This chart lists all Variable Account shareholders of record of the
Portfolios, who, as of June 20, 1997, held five percent or more of the shares
of the Portfolios of the Fund and all holdings of shares of the Portfolios by
Oppenheimer Capital, the parent of the Manager. To the best knowledge of the
Fund, no contractholder held units equivalent to 5% or more of the shares of
any Portfolio of the Fund as of June 20, 1997.
Shares of the Money Market Portfolio were acquired by Oppenheimer Capital
to provide initial capital for the Fund. Shares of the U.S. Government Income
Portfolio were acquired by Oppenheimer Capital to provide capital for the
Portfolio so that the Manager could commence a meaningful investment program for
the Portfolio, pending the acquisition of shares of the Portfolio by Variable
Accounts. The shares held by the Variable Accounts generally will be voted in
accordance with instructions of Contractowners. Under certain circumstances
however, the insurance companies, on behalf of their respective Variable
Accounts, may disregard voting instructions received from Contractowners. The
shares held by Oppenheimer Capital will be voted in the same proportions as
those voted by the insurance companies which are held in their respective
Variable Accounts. Any shareholder of record listed in the above chart
beneficially owning more than 25% of a particular Portfolio's shares may be
considered to be a "controlling person" of that Portfolio by virtue of the
definitions contained in the 1940 Act. The vote of such shareholder of record
could have a more significant effect on matters presented to shareholders for
approval than the votes of the Fund's other shareholders.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE ADVISORY AGREEMENT. The initial Advisory Agreement was first approved
by the Fund's Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Fund (as defined in the 1940 Act) and who have
no direct or indirect financial interest in such Agreement (the "Independent
Trustees") on May 26, 1994, and by the Manager as then sole shareholder of the
Fund on September 12, 1994 (the "Initial Advisory Agreement"). An amendment to
the initial Advisory Agreement was approved by the Fund's Board of Trustees,
including the Independent Trustees, on January 30, 1996 and by the shareholders
of the Equity, Global Equity, Managed and Small Cap Portfolios of the Fund on
April 15, 1996 and was effective as of May 1, 1996. Under the Initial Advisory
Agreement, the Manager received from the Fund, compensation on a monthly basis,
at the annual rate of 0.60% of the average daily net assets of each of the
Equity, Small Cap, Managed and U.S. Government Income Portfolios, 0.75% of the
average daily net assets of the Global Equity Portfolio, and 0.40% of the
average daily net assets of the Money Market Portfolio. Under the amendment to
the Initial Advisory Agreement, effective May 1, 1996, the Manager receives from
the Fund, compensation on a monthly basis, at an annual rate of 0.80% on the
first $400 million, 0.75% on the next $400 million and 0.70% thereafter of the
average daily net assets of the Equity, Global Equity, Managed and Small Cap
Portfolios, respectively. Compensation for services provided by the Manager to
the Money Market and U.S. Government Portfolios remain unchanged. The amendment
to the Initial Advisory Agreement also provides that the Manager will limit
total operating
24
<PAGE>
expenses of the Portfolios of the Fund to 1.25% (net of any
expense offsets) of their respective average daily net assets.
On February 28, 1997, the Board of Trustees including a majority of the
Trustees who are not "interested persons" of the Fund, approved a new Advisory
Agreement (the "Advisory Agreement"), on identical terms as the initial Advisory
Agreement, as amended, to take effect upon the acquisition by PIMCO Advisors
L.P. and its affiliate Thomson Advisory Group Inc. of a controlling interest in
Oppenheimer Capital and its subsidiary OpCap Advisors, the Manager of the Fund
(the "Transaction"). The Advisory Agreement was approved by the shareholders
of each Portfolio of the Fund at a Special Meeting of Shareholders held on _____
__, 1997. The Transaction was consummated on September __, 1997.
Under the Advisory Agreement, the Manager is required to: (i) regularly
provide investment advice and recommendations to each Portfolio of the Fund with
respect to its investments, investment policies and the purchase and sale of
securities; (ii) supervise continuously and determine the securities to be
purchased or sold by the Fund and the portion, if any, of the assets of each
Portfolio of the Fund to be held uninvested; and (iii) arrange for the purchase
of securities and other investments by each Portfolio of the Fund and the sale
of securities and other investments held by each Portfolio of the Fund.
The Advisory Agreement also requires the Manager to provide administrative
services for the Fund, including (1) coordination of the functions of
accountants, counsel and other parties performing services for the Fund and (2)
preparation and filing of reports required by federal securities and "blue sky"
laws, shareholder reports and proxy materials.
Expenses not expressly assumed by the Manager under the Advisory Agreement
or by OCC Distributors (the "Distributor") are paid by the Fund. The Advisory
Agreement lists examples of expenses paid by the Fund, of which the major
categories relate to interest, taxes, fees to non-interested trustees, legal and
audit expenses, custodian and transfer agent expenses, stock issuance costs,
certain printing and registration costs, and non-recurring expenses, including
litigation.
For the period September 16, 1994 (commencement of operations) to December
31, 1994, the Manager waived its fee of $6,957, $14,599 and $4,105 for the
Equity, Small Cap and Money Market Portfolios, respectively. In addition, the
Manager reimbursed operating expenses of $9,647, $7,395 and $6,449,
respectively, to such Portfolios. For the period September 16, 1994
(commencement of operations) to December 31, 1994, the total management fee
accrued or paid on the Managed Portfolio was $92,564; the total management fee
waived was $46,152. For the fiscal year ended December 31, 1995, the total
advisory fees accrued or paid by the Equity, Managed, Small Cap and Money Market
Portfolios were $38,504, $447,678, $72,770 and $16,447, respectively, of which,
$34,745, $55,036, $30,075 and $5,702, respectively, was waived by the Manager.
For the fiscal year ended December 31, 1995, the Manager waived its fee of
$9,022 and $4,873 for the Global Equity and U.S. Government Income Portfolios,
respectively. In addition, the Manager reimbursed operating expenses of
$23,340, $692 and $27,434, respectively, to such Portfolios. For the fiscal
year ended December 31, 1996, the total advisory fees accrued or paid by the
Equity, Managed, Small Cap, Money Market, U.S. Government Income and Global
Equity Portfolios were $109,057, $972,381,
25
<PAGE>
$165,735, $16,388, $14,797 and $71,811, respectively, of which $18,150,
$8,220, $17,823, $11,550, $14,797 and $37,689, was waived by the Manager. In
addition, the Manager reimbursed operating expenses of $19,305 for the U.S.
Government Income Portfolio.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Manager is not liable for any act or omission in the course of,
or in connection with, the rendition of services thereunder. The Agreement
permits the Manager to act as investment advisor for any other person, firm, or
corporation.
PORTFOLIO TRANSACTIONS. Portfolio decisions are based upon recommendations
of the Manager and the judgment of the portfolio managers. As most, if not all,
purchases made by the U.S. Government Income and Bond Portfolios will be
principal transactions at net prices, those Portfolios pay no brokerage
commissions; however prices of debt obligations reflect mark-ups and mark-downs
which constitute compensation to the executing dealer. The Portfolios will pay
brokerage commissions on transactions in listed options and equity securities.
Prices of securities purchased from underwriters of new issues include a
commission or concession paid by the issuer to the underwriter, and prices of
debt securities purchased from dealers include a spread between the bid and
asked prices. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers during the course
of an underwriting in return for their brokerage and research services, which
are intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to the
Fund and/or other accounts of the Manager; information received in connection
with directed orders of other accounts managed by the Manager or its affiliates
may or may not be useful to the Fund. Such information may be in written or
oral form and includes information on particular companies and industries as
well as market, economic or institutional activity areas. It serves to broaden
the scope and supplement the research activities of the Manager, to make
available additional views for consideration and comparison, and to enable the
Manager to obtain market information for the valuation of securities held by the
Fund. For the year ended December 31, 1996, the aggregate dollar amount
involved in such transactions was $1,378,195, with related commissions of
$1,861.
Sales of shares of the Fund, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to brokers and dealers, but only in
conformity with the price, execution and other considerations and practices
discussed above. The 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.
26
<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>
- --------------------------------------------------------------------------------
PORTFOLIO TOTAL AMOUNT OF TRANSACTIONS
WHERE BROKERAGE COMMISSIONS PAID TO OPCO(1)
- --------------------------------------------------------------------------------
$AMOUNTS %
- --------------------------------------------------------------------------------
1994 1995 1996 1994 1995 1996
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
(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 New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the
27
<PAGE>
NYSE that day, by dividing the value of the Fund's net assets by the number
of shares outstanding. The NYSE's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents'
Day, Martin Luther King's Birthday, Good Friday, Memorial Day, July 4th,
Labor Day, Thanksgiving and Christmas Day. It may also close on other days.
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO. Securities listed on a
national securities exchange or designated national market system securities are
valued at the last reported sale price on that day, or, if there has been no
sale on such day or on the previous day on which the Exchange was open (if a
week has not elapsed between such days), then the value of such security is
taken to be the reported bid price at the time as of which the value is being
ascertained. Securities actively traded in the over-the-counter market but not
designated as national market system securities are valued at the last quoted
bid price. Any securities or other assets for which current market quotations
are not readily available are valued at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees. The value of a foreign security
is determined in its national currency and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect on the date of
valuation.
The Fund's Board of Trustees has approved the use of nationally recognized
bond pricing services for the valuation of each Portfolio's debt securities.
The service selected by the Manager creates and maintains price matrices of U.S.
Government and other securities from which individual holdings are valued
shortly after the close of business each trading day. Debt securities not
covered by the pricing service are valued based upon bid prices obtained from
dealers who maintain an active market therein or, if no readily available market
quotations are available from dealers, such securities (including restricted
securities and OTC options) are valued at fair value under the Board of
Trustees' procedures. Short-term (having a remaining maturity of more than
sixty days) debt securities are valued on a "marked-to-market" basis, that is,
at prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term (having a maturity of 60 days or less) debt
securities are valued at amortized cost or value.
Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the spread
between the closing bid and asked prices on the valuation date. Futures are
valued based on their daily settlement value. When a Portfolio writes a call,
an amount equal to the premium received is included in the Portfolio's Statement
of Assets and Liabilities as an asset, and an equivalent credit is included in
the liability section. The credit is adjusted ("marked-to-market") to reflect
the current market value of the call. If a call written by a Portfolio is
exercised, the proceeds on the sale of the underlying securities are increased
by the premium received. If a call or put written by a Portfolio expires on its
stipulated expiration date the Portfolio will realize a gain equal to the amount
of the premium received. If a Portfolio enters into a closing transaction, it
will realize a gain or loss depending on whether the premium was more or less
than the transaction costs, without regard to unrealized appreciation or
depreciation on the underlying securities. If a put held by a Portfolio is
exercised by it, the amount the Portfolio receives on its sale of the underlying
investment is reduced by the amount of the premium paid by the Portfolio.
MONEY MARKET PORTFOLIO. The Money Market Portfolio operates under a rule
of the Securities and Exchange Commission under the 1940 Act (the "Rule") which
permits it to stabilize the
28
<PAGE>
price of its shares at $1.00 by valuing its securities holdings on the basis
of amortized cost. The amortized cost method of valuation is accomplished by
valuing a security at its cost adjusted by straight-line accretion or
amortization to maturity of any discount or premium. The method does not take
into account any unrealized gains or losses.
While the amortized cost method provides certainty in valuation, there may
be periods during which value, as determined by amortized cost, may be higher or
lower than the price the Money Market Portfolio would receive if it sold its
securities on a particular day. During periods of declining interest rates, the
daily yield on the Money Market Portfolio's shares may tend to be higher (and
net investment income and daily dividends lower) than under a like computation
made by a fund with identical investments which utilizes a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments and changing its dividends based on these changing prices. The
converse would apply in a period of rising interest rates.
Under the Rule, the Fund's Board of Trustees has established procedures
designed to stabilize, to the extent reasonably possible, the Money Market
Portfolio's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures must include review of the Money Market Portfolio's
holdings by the Board at such intervals as it may deem appropriate and at such
intervals as are reasonable in light of current market conditions, to determine
whether the Money Market Portfolio's net asset value calculated by using
available market quotations deviates from the per share value based on amortized
cost. "Available market quotations" may include actual quotations, estimates of
market value reflecting current market conditions based on quotations or
estimates of market value for individual portfolio instruments or values
obtained from yield data relating to a directly comparable class of securities
published by reputable sources.
Under the Rule, whenever the deviation between the net asset value per
share of the Money Market Portfolio's shares based on available market
quotations from the Portfolio's amortized cost price per share reaches 1/2 of
1%, the Board of Trustees must promptly consider what action, if any, will be
initiated. However, the Board of Trustees has adopted a policy under which it
will be required to consider what action to take whenever the deviation between
the net asset value per share based on available market quotations from the
Portfolio's amortized cost price per share reaches .003. When the Board of
Trustees believes that the extent of any deviation may result in material
dilution or other unfair results to potential investors or existing
shareholders, it is required to take such action as it deems appropriate to
eliminate or reduce to the extent reasonably practicable such dilution or unfair
results. Such actions could include the sale of securities holdings prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or payment of distributions from capital or
capital gains, redemptions of shares in kind, or establishing a net asset value
per share using available market quotations.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from net
income of the Money Market Portfolio will be declared on each day the NYSE is
open for business to shareholders of
29
<PAGE>
record as of the close of business the preceding business day. Net income,
for dividend purposes, includes accrued interest and accretion of original
issue and market discount, less the amortization of market premium and less
estimated expenses of the Money Market Portfolio. Net income will be
calculated immediately prior to the determination of net asset value per
share of the Money Market Portfolio (see "Determination of Net Asset Value"
above and in the Prospectus). The Board of Trustees may revise the above
dividend policy or postpone the payment of dividends if the Money Market
Portfolio should have or anticipates any large unexpected expense, loss or
fluctuation in net assets which in the opinion of the Board of Trustees might
have a significant adverse effect on shareholders. Any net realized capital
gains will be declared and paid at least annually.
OTHER PORTFOLIOS. The dividend policies of the U.S. Government Income,
Equity, Global Equity, Managed and Small Cap Portfolios are discussed in the
Prospectus. In computing interest income, these Portfolios will accrete any
discount or amortize any premium resulting from the purchase of debt securities
except for mortgage or other receivables-backed obligations subject to monthly
payment of principal and interest.
CAPITAL GAINS AND LOSSES. Gains or losses on the sales of securities by
the Fund will be long-term capital gains or losses if the securities have been
held by the Fund for more than twelve months, regardless of how long you have
held your shares. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses. At December 31,
1996, the Small Cap Portfolio will utilize $87,890 of net capital loss carry
forward. Additionally, at December 31, 1996, the Money Market Portfolio
incurred net realized capital losses of $14 which will expire in 2004 and the
U.S. Government Income Portfolio incurred net realized capital losses of $7,891
which will expire in 2004. To the extent that net capital losses are carried
forward and are used to offset future capital gains, it is probable that the
gains so offset will not be distributed to shareholders.
PORTFOLIO YIELD AND TOTAL RETURN INFORMATION
The performance information shown below reflects deductions for all
charges, expenses and fees of the Fund but does not reflect charges and
deductions which are, or may be, imposed under the Contracts.
MONEY MARKET PORTFOLIO. There are two methods by which the Money Market
Portfolio's yield for a specified period of time (as stated in the Prospectus)
is calculated.
The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of the
period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account during
the period is then determined by subtracting this beginning value from the value
of the account at the end of the period; however, capital changes (i.e.,
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) are excluded from the calculation. However, so
that the change will not reflect the capital changes to be excluded, the
dividends used in the yield computation may not be the same as the dividends
actually declared, as the capital changes in question
30
<PAGE>
may affect the dividends declared; see "Dividends, Distributions and Taxes"
herein and in the Prospectus. Instead, the dividends used in the yield
calculation will be those which would have been declared if the capital
changes had not affected the dividends. This net change in the account value
is then divided by the value of the account at the beginning of the period
(normally $1.00) and the resulting figure (referred to as the "base period
return") is then annualized by multiplying it by 365 and dividing it by the
number of days in the period; the result is the "current yield." Normally a
seven day period will be used in determining yields (both the current and the
effective yield discussed below) in published or mailed advertisements.
The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield for a seven day
period would be computed by compounding the unannualized base period return by
adding one to the base period return, raising the sum to a power equal to 365
divided by 7 and subtracting 1 from the result.
Since calculations of both kinds of yield do not take into consideration
any realized or unrealized gains or losses on the Portfolio's securities
holdings which may have an effect on dividends, the dividends declared during a
period may not be the same on an annualized basis as either kind of yield for
that period.
Yield information may be useful to investors in reviewing the Fund's
performance. However, a number of factors should be considered before using
yield information as a basis for comparison with other investments. An
investment in any of the Portfolios of the Fund is not insured; its yield is not
guaranteed and normally will fluctuate on a daily basis. The yield for any
given past period is not an indication or representation by the Fund of future
yields or rates of return on its shares. The Fund's yield is affected by
portfolio quality, portfolio maturity, type of instruments held, and operating
expenses. When comparing a Portfolio's yield with that of other investments,
investors should understand that certain other investment alternatives such as
money market instruments or bank accounts provide fixed yields and also that
bank accounts may be insured.
YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1996 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.47% 4.57%
(1) Reflects waiver of advisory fees by the Manager. Had the waiver not been
in effect during the period, the yield and effective yield would have been
4.38% and 4.48%, respectively, for the Money Market Portfolio.
YIELDS FOR PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. Yield information
may be useful to investors in reviewing the performance of certain Portfolios.
However, a number of factors should be considered before using yield information
as a basis for comparison with other investments. An
31
<PAGE>
investment in the Fund is not insured; yield is not guaranteed and normally
will fluctuate on a daily basis. The yield for any given past period is not
an indication or representation of future yields or rates of return. Yield
is affected by portfolio quality, portfolio maturity, type of instruments
held and operating expenses. When comparing a Portfolio's yield with that of
other investments, investors should understand that certain other investment
alternatives such as money-market instruments or bank accounts provide fixed
yields and also that bank accounts may be insured.
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1996 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.16%
(1) Reflects waiver of advisory fees and reimbursement of other expenses by
the Manager. Had the waiver and reimbursement not been in effect during the
period, the yield would have been 4.86% for the U.S. Government Income
Portfolio.
Current yield is calculated according to the following formula:
x 6
YIELD = 2(--- | 1) - 1
cd
Where:
x= daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.
c= the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d= the maximum offering price per share on the last day of the period.
Yield does not reflect capital gains or losses, non-recurring or irregular
income. Gain or loss attributable to actual monthly paydowns on mortgage or
other receivables-backed obligations purchased at a discount or premium is
reflected as an increase or decrease in interest income during the period.
A Portfolio's average annual total return represents an annualization of
the Portfolio's total return ("T" in the formula below), over a particular
period and is computed by finding the current percentage rate which will result
in the ending redeemable value ("ERV" in the formula below) of a
32
<PAGE>
$1,000 investment, ("P" in the formula below) made at the beginning of a one,
five or ten year period, or for the period from the date of commencement of
the Portfolio's operation, if shorter ("N" in the formula below). The
following formula will be used to compute the average annual total return for
each Portfolio (other than the Money Market Portfolio):
N
P (1 + T) = ERV
In addition to the foregoing, each Portfolio may advertise its total return
over different periods of time by means of aggregate, average, year by year or
other types of total return figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
In addition to average annual returns, each Portfolio may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments and/or a series of redemptions over
any time period. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indices including but not limited to the
S&P Composite Stock Price Index, Dow Jones Industrial Average, Consumer Price
Index, EAFE Index, Russell 2000 Index, and (3) Money Magazine and other
financial publications including but not limited to magazines, newspapers and
newsletters. Performance statistics may include total returns, measures of
volatility or other methods of portraying performance based on the method used
by the publishers of the information. In addition, comparisons may be made
between yields on certificates of deposit and U.S. government securities and
corporate bonds, and may refer to current or historic financial or economic
trends or conditions.
33
<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MANAGED, SMALL CAP, U.S. GOVERNMENT
INCOME AND GLOBAL EQUITY PORTFOLIOS OF OCC ACCUMULATION TRUST(1,2)
Portfolio For the one year For the five year For the period
- --------- period ended period ended from inception 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 the Fund's outstanding
shares may advise the Trustees in writing that they wish to communicate with
34
<PAGE>
other shareholders for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then either give the applicants access to the Fund's
shareholder list or mail the applicants' communication to all other shareholders
at the applicants' expense.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the Fund's obligations, and provides that the Fund shall indemnify
any shareholder who is held personally liable for the obligations of the Fund.
It also provides that the Fund shall assume, upon request, the defense of any
claim made against any shareholder for any act or obligation of the Fund and
shall satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of a trust (such as the Fund) to be held personally liable as a
partner under certain circumstances, the risk of a shareholder incurring any
financial loss on account of shareholder liability is limited to the relatively
remote circumstance in which the Fund itself would be unable to meet the
obligations described above.
POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses would be
allocated fairly among two or more Portfolios by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
independent accountants. The Rule contains special provisions for cases in
which an advisory agreement is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
DISTRIBUTION AGREEMENT. Under the Distribution Agreement between each
Portfolio and the Distributor, the Distributor acts as the Portfolio's agent in
the continuous public offering of its shares. Expenses normally attributed to
sales, including advertising and the cost of printing and mailing prospectuses
other than those furnished to existing shareholders, are borne by the
Distributor.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP serves as independent
accountants of the Fund; their services include examining the annual financial
statements of each Portfolio as well as other related services.
35
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - 1.6%
$ 320,000 Federal Home Loan Bank, 5.19%, 1/9/97(cost-$319,631).................. $ 319,631
----------
SHORT-TERM CORPORATE NOTES - 12.9%
AUTOMOTIVE - 4.5%
$ 900,000 Ford Motor Credit Co., 5.40%, 1/28/97................................. $ 896,355
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.6%
470,000 Household Finance Corp., 5.34%, 1/7/97................................ 469,582
640,000 Prudential Funding Corp., 5.62%, 1/8/97............................... 639,301
----------
1,108,883
----------
TECHNOLOGY - 2.8%
IBM Credit Corp.,
155,000 5.22%, 1/7/97......................................................... 154,865
290,000 5.32%, 1/7/97......................................................... 289,743
118,000 5.46%, 1/7/97......................................................... 117,892
----------
562,500
----------
Total Short-Term Corporate Notes (cost-$2,567,738).................... $ 2,567,738
----------
<CAPTION>
SHARES
------
<C> <S> <C>
COMMON STOCKS - 87.5%
AEROSPACE/DEFENSE - 4.7%
5,000 Lockheed Martin Corp. ................................................ $457,500
7,494 McDonnell Douglas Corp................................................ 479,616
----------
937,116
----------
BANKING - 7.5%
6,556 Citicorp.............................................................. 675,268
3,033 Wells Fargo & Co. .................................................... 818,152
----------
1,493,420
----------
CHEMICALS - 3.6%
2,000 du Pont (E.I.) de Nemours & Co. ...................................... 188,750
7,698 Hercules, Inc. ....................................................... 332,939
4,910 Monsanto Co. ......................................................... 190,876
----------
712,565
----------
CONGLOMERATES - 2.8%
2,156 General Electric Co. ................................................. 213,174
7,500 Tenneco, Inc.*........................................................ 338,437
----------
551,611
----------
</TABLE>
A-1
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS - 2.1%
3,844 Avon Products, Inc.................................................... $ 219,589
6,843 Mattel, Inc. ......................................................... 189,893
----------
409,482
----------
DRUGS & MEDICAL PRODUCTS - 3.1%
14,042 Becton, Dickinson & Co. .............................................. 609,072
----------
ELECTRONICS - 2.7%
7,038 Arrow Electronics, Inc.*.............................................. 376,533
5,000 Electronic Arts, Inc.*................................................ 149,687
----------
526,220
----------
ENERGY - 1.4%
698 El Paso Natural Gas Co. .............................................. 35,224
4,996 Triton Energy Ltd.*................................................... 242,306
----------
277,530
----------
ENTERTAINMENT - .1%
1,700 TCI Satellite Entertainment, Inc.*.................................... 16,787
----------
FOOD SERVICES - 2.4%
10,500 McDonald's Corp. ..................................................... 475,125
----------
HEALTH & HOSPITALS - 4.8%
12,000 Columbia/HCA Healthcare Corp. ........................................ 489,000
5,000 OrNda HealthCorp.*.................................................... 146,250
14,000 Tenet Healthcare Corp.*............................................... 306,250
----------
941,500
----------
INSURANCE - 23.2%
15,700 ACE Ltd. ............................................................. 943,963
7,372 AFLAC, Inc. .......................................................... 315,153
3,262 American International Group, Inc. ................................... 353,112
17,000 Everest Reinsurance Holdings, Inc. ................................... 488,750
24,452 EXEL Ltd. ............................................................ 926,119
2,000 General Re Corp. ..................................................... 315,500
10,000 Mid Ocean Ltd. ....................................................... 525,000
4,579 Progressive Corp. (Ohio).............................................. 308,510
13,000 RenaissanceRe Holdings Ltd. .......................................... 429,000
----------
4,605,107
----------
LEISURE - 2.3%
14,000 Carnival Corp. ....................................................... 462,000
----------
</TABLE>
A-2
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MACHINERY/ENGINEERING - 3.4%
9,000 Caterpillar, Inc. .................................................... $ 677,250
----------
MANUFACTURING - 4.9%
3,000 Armstrong World Industries, Inc. ..................................... 208,500
17,560 LucasVarity Corp. PLC ADR*............................................ 667,280
8,000 Shaw Industries, Inc. ................................................ 94,000
----------
969,780
----------
METALS & MINING - .3%
2,145 Freeport McMoRan Copper & Gold (Class B).............................. 64,082
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.7%
19,912 Countrywide Credit Industries, Inc. .................................. 569,981
5,155 Federal Home Loan Mortgage Corp. ..................................... 567,694
----------
1,137,675
----------
PRINTING/PUBLISHING - 1.7%
11,000 Donnelley (R.R.) & Sons Co. .......................................... 345,125
----------
RETAIL - 2.6%
10,888 May Department Stores Co. ............................................ 509,014
----------
TELECOMMUNICATIONS - 2.9%
6,000 Sprint Corp. ......................................................... 239,250
25,000 Tele-Communications, Inc. (Class A)*.................................. 326,563
----------
565,813
----------
TRANSPORTATION - 5.3%
4,300 AMR Corp.*............................................................ 378,938
13,000 Canadian Pacific Ltd. ................................................ 344,500
8,000 CSX Corp. ............................................................ 338,000
----------
1,061,438
----------
Total Common Stocks (cost - $13,605,569).............................. $17,347,712
----------
Total Investments (cost - $16,492,938)...................... 102.0% $20,235,081
Other Liabilities in Excess of Other Assets................. (2.0) (392,083)
----- -----------
Total Net Assets............................................ 100.0% $19,842,998
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-3
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $16,492,938)...................................... $20,235,081
Cash............................................................................ 114,721
Dividends receivable............................................................ 17,264
Receivable from fund shares sold................................................ 10,703
Other assets.................................................................... 883
-----------
Total Assets.................................................................. 20,378,652
-----------
LIABILITIES
Payable for investments purchased............................................... 494,608
Investment advisory fee payable................................................. 18,017
Payable for fund shares redeemed................................................ 6,182
Other payables and accrued expenses............................................. 16,847
-----------
Total Liabilities............................................................. 535,654
-----------
Total Net Assets.............................................................. $19,842,998
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 6,598
Paid-in-capital in excess of par................................................ 15,232,928
Accumulated undistributed net investment income................................. 188,895
Accumulated undistributed net realized gain on investments...................... 672,434
Net unrealized appreciation on investments...................................... 3,742,143
-----------
Total Net Assets.............................................................. $19,842,998
===========
Fund shares outstanding......................................................... 659,810
-----------
Net asset value per share....................................................... $ 30.07
===========
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 185,285
Interest....................................................................... 137,420
----------
Total investment income..................................................... 322,705
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 109,507
Custodian fees (note 1G)....................................................... 16,342
Auditing, consulting and tax return preparation fees........................... 10,185
Transfer and dividend disbursing agent fees.................................... 9,252
Reports and notices to shareholders............................................ 3,011
Legal fees..................................................................... 2,206
Miscellaneous.................................................................. 4,221
----------
Total operating expenses.................................................... 154,724
Less: Investment advisory fees waived (note 2A)............................. (18,150)
Less: Expense offset arrangement (note 1G).................................. (2,764)
----------
Net operating expenses................................................. 133,810
----------
Net investment income.................................................. 188,895
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 672,433
Net change in unrealized appreciation (depreciation) on investments............ 2,218,378
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 2,890,811
----------
Net increase in net assets resulting from operations............................. $3,079,706
==========
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 188,895 $ 111,781
Net realized gain on investments........................... 672,433 233,302
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,218,378 1,628,793
----------- ----------
Net increase in net assets resulting from operations..... 3,079,706 1,973,876
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (111,781) (20,888)
Net realized gains......................................... (223,969) --
----------- ----------
Total dividends and distributions to shareholders........ (335,750) (20,888)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 9,184,397 3,630,236
Reinvestment of dividends and distributions................ 335,750 20,888
Cost of shares redeemed.................................... (1,457,087) (849,386)
----------- ----------
Net increase in net assets from fund share
transactions.......................................... 8,063,060 2,801,738
----------- ----------
Total increase in net assets.......................... 10,807,016 4,754,726
NET ASSETS
Beginning of year.......................................... 9,035,982 4,281,256
----------- ----------
End of year (including undistributed net investment income
of $188,895 and $111,781, respectively).................. $19,842,998 $ 9,035,982
=========== ==========
SHARES ISSUED AND REDEEMED
Issued..................................................... 339,540 161,702
Issued in reinvestment of dividends and distributions...... 13,029 1,074
Redeemed................................................... (53,448) (38,368)
----------- ----------
Net increase............................................. 299,121 124,408
=========== ==========
</TABLE>
See accompanying notes to financial statements.
A-6
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity Portfolio
(the "Portfolio"), the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions
A-7
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains, respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-capital or tax return of capital. At December 31, 1996,
the Portfolio did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $14,116, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $5,743.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $11,763,936 and $4,337,943,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,901,280, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $159,137 and net unrealized appreciation for Federal income tax purpose is
$3,742,143. Federal income tax cost basis of portfolio securities is $16,492,938
at December 31, 1996.
A-8
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-9
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 25.05 $ 18.12 $ 18.57
-------- ------- -------
Income from investment operations:
Net investment income................... 0.21 0.31 0.09
Net realized and unrealized gain (loss)
on investments........................ 5.52 6.71 (0.54)
-------- ------- -------
Total from investment operations...... 5.73 7.02 (0.45)
-------- ------- -------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.24) (0.09) --
Distributions to shareholders from net
realized capital gains................ (0.47) -- --
-------- ------- -------
Total dividends and distributions to
shareholders....................... (0.71) (0.09) --
-------- ------- -------
Net asset value, end of period.......... $ 30.07 $ 25.05 $ 18.12
======== ======= =======
Total return(2)......................... 23.4% 38.9% (2.4%)
======== ======= =======
Net assets, end of period............... $19,842,998 $ 9,035,982 $ 4,281,256
-------- ------- -------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.72% 0.72%(3)
-------- ------- -------
Ratio of net investment income to
average net assets(6)................. 1.29%(4) 1.74% 1.80%(3)
-------- ------- -------
Portfolio turnover rate................. 36% 31% 6%
-------- ------- -------
Average commission rate................. $ 0.0588 -- --
-------- ------- -------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $14,669,645.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.05% and
1.15%, respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Equity Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-11
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - .7%
$ 230,000 Federal Home Loan Mortgage Corp., 5.23%, 1/2/97 (cost - $229,967).... $ 229,967
-----------
SHORT-TERM CORPORATE NOTES - 16.8%
AUTOMOTIVE - 2.5%
Ford Motor Credit Co.,
$ 345,000 5.40%, 1/28/97....................................................... $ 343,603
500,000 5.62%, 1/2/97........................................................ 499,922
-----------
843,525
-----------
BANKING - 1.9%
670,000 Norwest Financial, Inc., 5.51%, 1/22/97.............................. 667,846
-----------
CONGLOMERATES - 3.7%
1,275,000 General Electric Capital Corp., 5.35%, 1/30/97....................... 1,269,505
-----------
MACHINERY/ENGINEERING - 3.5%
1,210,000 Deere (John) Capital Corp., 5.38%, 1/22/97........................... 1,206,203
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.5%
500,000 Beneficial Corp., 5.52%, 1/28/97..................................... 497,930
-----------
TECHNOLOGY - 3.7%
IBM Credit Corp.,
370,000 5.31%, 1/6/97........................................................ 369,727
900,000 5.32%, 1/6/97........................................................ 899,335
-----------
1,269,062
-----------
Total Short-Term Corporate Notes (cost - $5,754,071)................. $ 5,754,071
-----------
CORPORATE NOTE - .1%
AUTOMOTIVE - .1%
$ 2,148 Collins Industries, Inc., 8.75%, 1/11/00 (cost - $2,148)............. $ 1,995
-----------
CONVERTIBLE CORPORATE BOND - .1%
REAL ESTATE - .1%
$ 49,995 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $45,364)..................................................... $ 60,481
-----------
<CAPTION>
SHARES
------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .2%
TRANSPORTATION - .2%
825 Interpool, Inc., 5.75%, Conv. Pfd. (cost - $62,700).................. $ 84,150
-----------
COMMON STOCKS - 82.2%
ADVERTISING - 2.4%
71,900 Katz Media Group, Inc.*.............................................. $ 808,875
-----------
AEROSPACE/DEFENSE - 1.2%
19,000 Tracor, Inc.*........................................................ 403,750
-----------
</TABLE>
A-12
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
AUTOMOTIVE - 2.5%
14,400 Borg-Warner Automotive, Inc.......................................... $ 554,400
45,000 Jason, Inc.*......................................................... 292,500
-----------
846,900
-----------
BANKING - .5%
6,800 First Financial Caribbean Corp. ..................................... 188,700
-----------
BUILDING & CONSTRUCTION - 1.0%
16,400 Dal-Tile International, Inc.*........................................ 334,150
-----------
CHEMICALS - 1.1%
10,500 McWhorter Technologies, Inc.*........................................ 240,187
9,800 Sybron Chemicals, Inc.*.............................................. 156,800
-----------
396,987
-----------
COMPUTER SERVICES - 3.8%
63,867 BancTec, Inc.*....................................................... 1,317,257
-----------
DRUGS & MEDICAL PRODUCTS - 5.9%
5,000 Dentsply International, Inc. ........................................ 237,500
62,800 SpaceLabs Medical, Inc.*............................................. 1,287,400
19,700 Vital Signs, Inc. ................................................... 512,200
-----------
2,037,100
-----------
ELECTRICAL EQUIPMENT - 10.6%
9,200 Arrow Electronics, Inc.*............................................. 492,200
5,300 AVX Corp. ........................................................... 113,950
56,800 EG & G, Inc. ........................................................ 1,143,100
43,000 Exar Corp.*.......................................................... 666,500
19,100 Marshall Industries*................................................. 584,937
27,720 Oak Industries, Inc.*................................................ 637,560
-----------
3,638,247
-----------
ENERGY - 5.1%
17,948 Aquila Gas Pipeline Corp. ........................................... 284,924
3,300 Belden & Blake Corp.*................................................ 84,150
10,000 Nuevo Energy Co.*.................................................... 520,000
21,300 Petroleum Heat & Power Company, Inc. (Class A)....................... 135,788
9,640 Seagull Energy Corp.*................................................ 212,080
12,500 St. Mary Land & Exploration Co. ..................................... 310,938
4,000 Triton Energy Ltd.*.................................................. 194,000
-----------
1,741,880
-----------
</TABLE>
A-13
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH & HOSPITALS - 5.0%
65,200 Magellan Health Services, Inc*....................................... $ 1,458,850
14,800 Summit Care Corp.*................................................... 242,350
-----------
1,701,200
-----------
INSURANCE - 14.4%
9,400 ACE Ltd. ............................................................ 565,175
38,100 Capsure Holdings Corp.*.............................................. 433,388
20,600 Delphi Financial Group, Inc. ........................................ 607,700
10,900 Everest Reinsurance Holdings, Inc. .................................. 313,375
50,300 E.W. Blanch Holdings, Inc. .......................................... 1,012,287
17,200 Gryphon Holdings, Inc. .............................................. 242,950
17,000 Horace Mann Educators Corp. ......................................... 686,375
7,100 Protective Life Corp. ............................................... 283,112
18,200 United Wisconsin Services, Inc. ..................................... 477,750
6,000 W.R. Berkley Corp. .................................................. 304,500
-----------
4,926,612
-----------
MACHINERY/ENGINEERING - 2.1%
30,200 United Dominion Industries, Ltd. .................................... 709,700
-----------
MANUFACTURING - 8.0%
13,600 Alltrista Corp.*..................................................... 350,200
139,200 Baldwin Technology Co. (Class A)*.................................... 348,000
6,500 Briggs & Stratton Corp. ............................................. 286,000
4,500 Carlisle Companies, Inc. ............................................ 272,250
15,750 Crane Co. ........................................................... 456,750
59,500 Easco, Inc. ......................................................... 453,687
31,200 Exabyte Corp.*....................................................... 417,300
5,200 Greenfield Industries, Inc. ......................................... 159,250
-----------
2,743,437
-----------
MEDIA/BROADCASTING - .6%
7,500 American Radio Systems Corp.*........................................ 204,375
-----------
PAPER PRODUCTS - 2.4%
143,800 Repap Enterprises, Inc.*............................................. 399,944
21,000 Shorewood Packaging Corp.*........................................... 409,500
-----------
809,444
-----------
PRINTING & PUBLISHING - 2.9%
15,300 International Imaging Materials, Inc.*............................... 348,075
63,400 Nu-Kote Holdings, Inc. (Class A)*.................................... 649,850
-----------
997,925
-----------
</TABLE>
A-14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE - 3.6%
15,291 Cousins Properties, Inc. ............................................ $ 430,059
66 Security Capital Group, Inc. (A)..................................... 82,156
20,200 Security Capital Industrial Trust, Inc. ............................. 431,775
12,752 Security Capital Pacific Trust....................................... 291,702
-----------
1,235,692
-----------
RETAIL - .4%
8,500 Maxim Group, Inc.*................................................... 148,750
-----------
TECHNOLOGY - 4.1%
11,000 Channell Commercial Corp.*........................................... 136,125
8,000 Unitrode Corp.*...................................................... 235,000
51,400 Wang Laboratories, Inc.*............................................. 1,040,850
-----------
1,411,975
-----------
TELECOMMUNICATIONS - .6%
10,100 ECI Telecom Ltd. .................................................... 214,625
-----------
TEXTILES/APPAREL - 1.7%
19,000 Westpoint Stevens, Inc. (Class A)*................................... 567,625
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
6,000 Sylvan Foods Holdings, Inc.*......................................... 78,000
-----------
TRANSPORTATION - 1.6%
12,200 Interpool, Inc....................................................... 285,175
13,100 MTL, Inc.*........................................................... 265,275
-----------
550,450
-----------
OTHER - .5%
6,150 McGrath RentCorp..................................................... 158,363
-----------
Total Common Stocks (cost - $24,953,214)............................. $28,172,019
-----------
Total Investments (cost - $31,047,464)....................... 100.1% $34,302,683
Other Liabilities in Excess of other assets.................. (0.1) (46,012)
----- -----------
Total Net Assets............................................. 100.0% $34,256,671
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
(A) Restricted securities (the Portfolio will not bear any costs, including
those involved in registration under the securities act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14....... 9/16/94 $49,995 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock.......... 9/16/94 -- 66 949 1,245
</TABLE>
See accompanying notes to financial statements.
A-15
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $31,047,464)...................................... $34,302,683
Cash............................................................................ 8,758
Dividends receivable............................................................ 8,504
Interest receivable............................................................. 6,304
Receivable from fund shares sold................................................ 1,397
Other assets.................................................................... 1,207
-----------
Total Assets.................................................................. 34,328,853
-----------
LIABILITIES
Payable for fund shares redeemed................................................ 27,274
Investment advisory fee payable................................................. 23,648
Other payables and accrued expenses............................................. 21,260
-----------
Total Liabilities............................................................. 72,182
-----------
Total Net Assets.............................................................. $34,256,671
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 15,153
Paid-in-capital in excess of par................................................ 29,167,853
Accumulated undistributed net investment income................................. 226,925
Accumulated undistributed net realized gain on investments...................... 1,591,521
Net unrealized appreciation on investments...................................... 3,255,219
-----------
Total Net Assets.............................................................. $34,256,671
===========
Fund shares outstanding......................................................... 1,515,250
-----------
Net asset value per share....................................................... $ 22.61
===========
</TABLE>
See accompanying notes to financial statements.
A-16
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 227,354
Interest....................................................................... 199,837
----------
Total investment income..................................................... 427,191
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 165,735
Custodian fees (note 1G)....................................................... 22,883
Auditing, consulting and tax return preparation fees........................... 10,309
Transfer and dividend disbursing agent fees.................................... 9,357
Trustees' fees and expenses.................................................... 5,702
Reports and notices to shareholders............................................ 3,914
Legal fees..................................................................... 3,048
Miscellaneous.................................................................. 1,770
----------
Total operating expenses.................................................... 222,718
Less: Investment advisory fees waived (note 2A)............................. (17,823)
Less: Expense offset arrangement (note 1G).................................. (4,629)
----------
Net operating expenses................................................. 200,266
----------
Net investment income.................................................. 226,925
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Net realized gain on investments............................................... 1,679,412
Net change in unrealized appreciation (depreciation) on investments............ 2,142,715
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 3,822,127
----------
Net increase in net assets resulting from operations............................. $4,049,052
==========
</TABLE>
See accompanying notes to financial statements.
A-17
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 226,925 $ 211,870
Net realized gain on investments........................... 1,679,412 456,809
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,142,715 1,189,804
----------- -----------
Net increase in net assets resulting from
operations.......................................... 4,049,052 1,858,483
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (211,870) (29,623)
Net realized gains......................................... (544,700) (26,352)
----------- -----------
Total dividends and distributions to shareholders..... (756,570) (55,975)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 17,604,938 7,801,061
Reinvestment of dividends and distributions................ 756,533 55,975
Cost of shares redeemed.................................... (3,401,674) (2,865,595)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 14,959,797 4,991,441
----------- -----------
Total increase in net assets..................... 18,252,279 6,793,949
NET ASSETS
Beginning of year.......................................... 16,004,392 9,210,443
----------- -----------
End of year (including undistributed net investment income
of $226,925 and $211,870, respectively).................. $34,256,671 $16,004,392
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 837,586 427,444
Issued in reinvestment of dividends and distributions...... 38,520 3,289
Redeemed................................................... (164,530) (156,903)
----------- -----------
Net increase.......................................... 711,576 273,830
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-18
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global Equity
Portfolio, the Managed Portfolio, the Bond Portfolio, the U. S. Government
Income Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"),
a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting
A-19
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
principles. These "book-tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their Federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains, respectively. To the extent distributions
exceed current and accumulated earnings and profits for Federal income tax
purposes, they are reported as distributions of paid-in-capital or tax return of
capital. At December 31, 1996, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $52,990, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $23,565.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $20,565,700 and $9,055,696,
respectively.
A-20
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,909,842, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $663,423, and net unrealized appreciation for Federal income tax purposes is
$3,246,419. Federal income tax cost basis of portfolio securities is $31,056,264
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-21
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 19.91 $ 17.38 $ 17.49
----------- ----------- ----------
Income from investment operations:
Net investment income................... 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments........................ 3.45 2.37 (0.17)
----------- ----------- ----------
Total from investment operations...... 3.59 2.63 (0.11)
----------- ----------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.25) (0.05) --
Distributions to shareholders from net
realized capital gains................ (0.64) (0.05) --
----------- ----------- ----------
Total dividends and distributions to
shareholders....................... (0.89) (0.10) --
----------- ----------- ----------
Net asset value, end of period.......... $ 22.61 $ 19.91 $ 17.38
=========== =========== ==========
Total return(2)......................... 18.7% 15.2% (0.6%)
=========== =========== ==========
Net assets, end of period............... $34,256,671 $16,004,392 $ 9,210,443
----------- ----------- ----------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.74% 0.74%(3)
----------- ----------- ----------
Ratio of net investment income to
average net assets(6)................. 1.03%(4) 1.75% 1.22%(3)
----------- ----------- ----------
Portfolio turnover rate................. 50% 69% 32%
----------- ----------- ----------
Average commission rate................. $ 0.0493 -- --
----------- ----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $22,131,648.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.01% and
0.92%, respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Small Cap Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Small Cap Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-23
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 13.6%
AUTOMOTIVE - 3.8%
$6,870,000 Ford Motor Credit Co., 5.42%, 1/6/97................................ $ 6,864,828
------------
CONGLOMERATES - 4.3%
7,680,000 General Electric Capital Corp., 5.39%, 1/7/97....................... 7,673,101
------------
INSURANCE - .3%
555,000 Marsh & McLennan Co., Inc., 6.55%, 1/2/97........................... 554,899
------------
MISCELLANEOUS FINANCIAL SERVICES - 5.2%
Household Finance Corp.,
130,000 5.34%, 1/7/97....................................................... 129,884
3,300,000 5.45%, 1/7/97....................................................... 3,297,003
6,000,000 Merrill Lynch & Co., Inc., 5.70%, 1/6/97............................ 5,995,250
------------
9,422,137
------------
Total Short-Term Corporate Notes (cost - $24,514,965)............... $ 24,514,965
------------
U.S. TREASURY NOTES AND BONDS - .9%
$ 700,000 6.25%, 8/15/23...................................................... $ 656,250
630,000 7.875%, 4/15/98..................................................... 646,437
297,500 7.875%, 8/15/01..................................................... 317,117
------------
Total U.S. Treasury Notes and Bonds (cost - $1,514,907)............. $ 1,619,804
------------
CONVERTIBLE CORPORATE BOND - .4%
REAL ESTATE - .4%
$ 614,371 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $557,508)................................................... $ 743,231
------------
<CAPTION>
SHARES
- ----------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .0%
RETAIL - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............ $ 45,533
------------
COMMON STOCKS - 85.4%
AEROSPACE/DEFENSE - 7.5%
43,200 Lockheed Martin Corp. .............................................. $ 3,952,800
150,000 McDonnell Douglas Corp. ............................................ 9,600,000
------------
13,552,800
------------
BANKING - 12.3%
80,000 Citicorp............................................................ 8,240,000
10,000 First Empire State Corp. ........................................... 2,880,000
41,200 Wells Fargo & Co. .................................................. 11,113,700
------------
22,233,700
------------
</TABLE>
A-24
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BUILDING & CONSTRUCTION - .3%
31,680 Newport News Shipbuilding Inc.*..................................... $ 475,200
------------
CHEMICALS - 8.4%
83,000 du Pont (E.I.) de Nemours & Co. .................................... 7,833,125
100,000 Hercules, Inc. ..................................................... 4,325,000
80,000 Monsanto Co. ....................................................... 3,110,000
------------
15,268,125
------------
CONGLOMERATES - 4.1%
164,200 Tenneco, Inc. ...................................................... 7,409,525
------------
CONSUMER PRODUCTS - 3.6%
236,200 Mattel, Inc. ....................................................... 6,554,550
------------
DRUGS & MEDICAL PRODUCTS - 3.1%
130,000 Becton, Dickinson & Co. ............................................ 5,638,750
------------
ENERGY - 2.7%
55,300 Triton Energy Ltd.*................................................. 2,682,050
73,091 Union Pacific Resources Group, Inc. ................................ 2,137,912
------------
4,819,962
------------
FOOD SERVICES - 3.2%
127,700 McDonald's Corp. ................................................... 5,778,425
------------
INSURANCE - 6.6%
60,000 ACE Ltd. ........................................................... 3,607,500
138,600 EXEL Ltd. .......................................................... 5,249,475
15,400 Transamerica Corp. ................................................. 1,216,600
41,200 Travelers Group, Inc. .............................................. 1,869,450
------------
11,943,025
------------
MANUFACTURING - 2.3%
54,700 Catepillar, Inc..................................................... 4,116,175
------------
METALS & MINING - 3.2%
196,100 Freeport McMoRan Copper & Gold (Class B)............................ 5,858,487
------------
MISCELLANEOUS FINANCIAL SERVICES - 12.1%
57,200 American Express Co. ............................................... 3,231,800
161,000 Countrywide Credit Industries, Inc. ................................ 4,608,625
77,500 Federal Home Loan Mortgage Corp. ................................... 8,534,687
145,900 Federal National Mortgage Assoc. ................................... 5,434,775
------------
21,809,887
------------
PAPER PRODUCTS - 1.9%
80,000 Champion International Corp. ....................................... 3,460,000
------------
PRINTING/PUBLISHING - .8%
45,600 Donnelly (R.R.) & Sons Co. ......................................... 1,430,700
------------
</TABLE>
A-25
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RAILROADS - 2.9%
86,300 Union Pacific Corp. ................................................ $ 5,188,788
------------
REAL ESTATE - .6%
811 Security Capital Group, Inc. (A).................................... 1,009,517
------------
TECHNOLOGY - 5.9%
29,300 Intel Corp. ........................................................ 3,836,469
190,600 National Semiconductor Corp.*....................................... 4,645,875
75,000 Unitrode Corp.*..................................................... 2,203,125
------------
10,685,469
------------
TELECOMMUNICATIONS - 3.9%
30,000 Sprint Corp. ....................................................... 1,196,250
456,000 Tele-Communications, Inc. (Class A) *............................... 5,956,500
------------
7,152,750
------------
Total Common Stocks (cost - $115,007,880)........................ $154,385,835
------------
Total Investments (cost - $141,697,788)................... 100.3% $181,309,368
Other Liabilities in Excess of Other Assets............... (0.3) (581,274)
----- ------------
Total Net Assets........................................ 100.0% $180,728,094
===== ============
</TABLE>
- ---------------
* Non-income producing security.
(A) Restricted Securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14 9/16/94 $614,371 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock 9/16/94 -- 811 949 1,245
</TABLE>
A-26
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $141,697,788).................................... $181,309,368
Cash........................................................................... 6,937
Receivable from investments sold............................................... 1,047,817
Receivable from fund shares sold............................................... 329,292
Dividends receivable........................................................... 123,034
Interest receivable............................................................ 110,591
Other assets................................................................... 7,932
------------
Total Assets................................................................. 182,934,971
------------
LIABILITIES
Payable for investments purchased.............................................. 1,897,083
Investment advisory fee payable................................................ 137,907
Payable for fund shares redeemed............................................... 132,215
Other payables and accrued expenses............................................ 39,672
------------
Total Liabilities............................................................ 2,206,877
------------
Total Net Assets............................................................. $180,728,094
============
NET ASSETS
Par value ($.01 per share)..................................................... $ 49,914
Paid-in-capital in excess of par............................................... 132,265,145
Accumulated undistributed net investment income................................ 2,161,818
Accumulated undistributed net realized gain on investments..................... 6,639,637
Net unrealized appreciation on investments..................................... 39,611,580
------------
Total Net Assets............................................................. $180,728,094
============
Fund shares outstanding........................................................ 4,991,370
------------
Net asset value per share...................................................... $ 36.21
============
</TABLE>
See accompanying notes to financial statements.
A-27
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 1,924,873
Interest...................................................................... 1,333,194
-----------
Total investment income.................................................... 3,258,067
-----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................ 972,381
Custodian fees (note 1G)...................................................... 31,020
Trustees' fees and expenses................................................... 25,790
Reports and notices to shareholders........................................... 21,135
Auditing, consulting and tax return preparation fees.......................... 13,434
Transfer and dividend disbursing agent fees................................... 11,151
Legal fees.................................................................... 9,476
Miscellaneous................................................................. 23,141
-----------
Total operating expenses................................................... 1,107,528
Less: Investment advisory fees waived (note 2A)............................ (8,220)
Less: Expense offset arrangement (note 1G)................................. (3,060)
-----------
Net operating expenses................................................ 1,096,248
-----------
Net investment income................................................. 2,161,819
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments.............................................. 6,639,637
Net change in unrealized appreciation (depreciation) on investments........... 18,285,659
-----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments............................................................... 24,925,296
-----------
Net increase in net assets resulting from operations............................ $27,087,115
===========
</TABLE>
See accompanying notes to financial statements.
A-28
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 2,161,819 $ 1,378,069
Net realized gain on investments........................... 6,639,637 1,023,914
Net change in unrealized appreciation (depreciation) on
investments.............................................. 18,285,659 23,901,028
------------ -----------
Net increase in net assets resulting from
operations.......................................... 27,087,115 26,303,011
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (1,378,070) (360,801)
Net realized gains......................................... (878,874) --
------------ -----------
Total dividends and distributions to shareholders..... (2,256,944) (360,801)
------------ -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 79,297,599 27,913,098
Reinvestment of dividends and distributions................ 2,256,944 360,801
Cost of shares redeemed.................................... (24,844,767) (9,971,333)
------------ -----------
Net increase in net assets from fund share
transactions........................................ 56,709,776 18,302,566
------------ -----------
Total increase in net assets..................... 81,539,947 44,244,776
NET ASSETS
Beginning of year.......................................... 99,188,147 54,943,371
------------ -----------
End of year (including undistributed net investment income
of $2,161,818 and $1,378,069, respectively).............. $ 180,728,094 $99,188,147
============ ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 2,403,077 1,016,970
Issued in reinvestment of dividends and distributions...... 73,016 15,866
Redeemed................................................... (775,472) (379,452)
------------ -----------
Net increase.......................................... 1,700,621 653,384
============ ===========
</TABLE>
See accompanying notes to financial statements.
A-29
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994, as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio (the "Portfolio"), the Bond Portfolio, the U. S. Government Income
Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts
A-30
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
based on their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-
in-capital or tax return of capital. At December 31, 1996, the Portfolio did not
have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $107,123, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $61,183.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $84,349,690 and $30,263,820,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $40,341,986, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $730,406 and net unrealized appreciation for Federal income tax purposes is
$39,611,580. Federal income tax cost basis of portfolio securities is
$141,697,788 at December 31, 1996.
A-31
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-32
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 30.14 $ 20.83 $ 21.80
----------- ---------- ---------
Income from investment operations:
Net investment income.................. 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments....................... 6.31 9.02 (1.11)
----------- ---------- ---------
Total from investment operations..... 6.74 9.44 (0.97)
----------- ---------- ---------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income.................... (0.41) (0.13) --
Distributions to shareholders from net
realized capital gains............... (0.26) -- --
----------- ---------- ---------
Total dividends and distributions to
shareholders...................... (0.67) (0.13) 0.00
----------- ---------- ---------
Net asset value, end of period......... $ 36.21 $ 30.14 $ 20.83
=========== ========== =========
Total return(2)........................ 22.8% 45.6% (4.4%)
=========== ========== =========
Net assets, end of period.............. $ 180,728,094 $99,188,147 $54,943,371
----------- ---------- ---------
Ratio of net operating expenses to
average net assets(6)................ 0.84%(4,5) 0.66% 0.66%(3)
----------- ---------- ---------
Ratio of net investment income to
average net assets(6)................ 1.66%(4) 1.85% 2.34%(3)
----------- ---------- ---------
Portfolio turnover rate................ 27% 22% 8%
----------- ---------- ---------
Average commission rate................ $ 0.0592 -- --
----------- ---------- ---------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $130,347,107.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 0.85% and
1.65%, respectively, for the year ended December 31, 1996, 0.74% and 1.77%,
respectively, for the year ended December 31, 1995 and 0.96% and 2.04%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Managed Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Managed Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-34
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. TREASURY NOTES AND BONDS - 35.6%
$175,000.. 5.75%, 10/31/97...................................................... $ 175,247
525,000.. 6.50%, 10/15/06...................................................... 527,872
175,000.. 7.25%, 8/15/22....................................................... 185,117
----------
Total U.S. Treasury Notes and Bonds (cost - $911,980)................ $ 888,236
----------
MORTGAGE-RELATED SECURITIES - 34.5%
$ 80,682 Federal Home Loan Mortgage Corp.,
8.50%, 10/15/19...................................................... $ 81,942
Federal National Mortgage Assoc.,
177,953 6.50%, 5/1/26........................................................ 169,723
196,302 7.00%, 1/1/10........................................................ 197,283
154,262 8.00%, 8/1/24........................................................ 157,492
8,207 9.00%, 8/1/02........................................................ 8,553
20,111 9.50%, 12/1/06....................................................... 21,135
73,983 9.50%, 12/1/19....................................................... 80,248
141,214 Government National Mortgage Assoc.,
8.50%, 3/15/25....................................................... 146,684
----------
Total Mortgage-Related Securities (cost - $841,948).................. $ 863,060
----------
CORPORATE NOTES & BONDS - 26.5%
AUTOMOTIVE - 4.3%
$ 100,000 General Motors Acceptance Corp., 8.25%, 2/24/04...................... $ 107,161
----------
CONGLOMERATES - 4.3%
100,000 General Electric Capital Corp., 8.375%, 3/1/01....................... 106,652
----------
MISCELLANEOUS FINANCIAL SERVICES - 17.9%
125,000 Associates Corp., N.A., 5.25%, 3/30/00............................... 120,684
100,000 BarclaysAmerican Corp., 7.875%, 8/15/98.............................. 102,535
100,000 Household Finance Corp., 6.875%, 3/1/03.............................. 100,509
125,000 International Lease Finance Corp., 6.125%, 11/1/99................... 123,714
----------
447,442
----------
Total Corporate Notes & Bonds (cost - $648,295)...................... $ 661,255
----------
Total Investments (cost - $2,402,223)....................... 96.6% $2,412,551
Other Assets in Excess of Other Liabilities................. 3.4 84,895
----- ----------
Total Net Assets............................................ 100.0% $2,497,446
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-35
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $2,402,223)........................................ $2,412,551
Cash............................................................................. 71,315
Interest receivable.............................................................. 32,400
Other assets..................................................................... 393
----------
Total Assets................................................................... 2,516,659
----------
LIABILITIES
Investment advisory fee payable.................................................. 3,750
Other payables and accrued expenses.............................................. 15,463
----------
Total Liabilities.............................................................. 19,213
----------
Total Net Assets............................................................... $2,497,446
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 2,629
Paid-in-capital in excess of par................................................. 2,473,650
Accumulated undistributed net realized gain on investments....................... 10,839
Net unrealized appreciation on investments....................................... 10,328
----------
Total Net Assets............................................................... $2,497,446
==========
Fund shares outstanding.......................................................... 262,938
----------
Net asset value per share........................................................ $ 9.50
==========
</TABLE>
See accompanying notes to financial statements.
A-36
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................................... $ 323,750
--------
OPERATING EXPENSES
Investment advisory fees (note 2).............................................. 24,157
Custodian fees (note 1G)....................................................... 17,341
Auditing, consulting and tax return preparation fees........................... 10,226
Transfer and dividend disbursing agent fees.................................... 9,082
Legal fees..................................................................... 1,918
Reports and notices to shareholders............................................ 1,335
Miscellaneous.................................................................. 3,917
--------
Total operating expenses.................................................... 67,976
Less: Investment advisory fees waived (note 2).............................. (18,557)
Less: Expense offset arrangement (note 1G).................................. (1,195)
--------
Net operating expenses................................................. 48,224
--------
Net investment income.................................................. 275,526
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 10,977
Net change in unrealized appreciation (depreciation) on investments............ (184,990)
--------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ (174,013)
--------
Net increase in net assets resulting from operations............................. $ 101,513
========
</TABLE>
See accompanying notes to financial statements.
A-37
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 275,526 $ 244,328
Net realized gain on investments........................... 10,977 79,769
Net change in unrealized appreciation (depreciation) on
investments ............................................. (184,990) 269,489
----------- -----------
Net increase in net assets resulting from
operations.......................................... 101,513 593,586
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (275,526) (244,328)
Net realized gains......................................... (75,648) --
----------- -----------
Total dividends and distributions to shareholders..... 351,174 (244,328)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 1,066,456 1,574,585
Reinvestment of dividends and distributions................ 350,959 242,735
Cost of shares redeemed.................................... (2,954,763) (1,537,477)
----------- -----------
Net increase (decrease) in net assets from fund share
transactions........................................ (1,537,348) 279,843
----------- -----------
Total increase (decrease) in net assets.......... (1,787,009) 629,101
NET ASSETS
Beginning of year.......................................... 4,284,455 3,655,354
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 2,497,446 $ 4,284,455
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 107,627 165,081
Issued in reinvestment of dividends and distributions...... 36,654 25,011
Redeemed................................................... (310,084) (158,718)
----------- -----------
Net increase (decrease)............................... (165,803) 31,374
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-38
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio (the "Portfolio"), the U. S. Government Income
Portfolio and the Money Market Portfolio. The Trust filed an application with
the Securities and Exchange Commission for an Order approving the substitution
of shares of the U.S. Government series for shares of the Bond series. Notice of
the Application was published January 29, 1997. If the order is issued, the
substitution will be effected shortly thereafter. OpCap Advisors, (the
"Adviser"), a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as
the Trust's investment adviser. The Trust is an investment vehicle for variable
annuity and variable life insurance contracts of various life insurance
companies, and qualified pension and retirement plans. The following is a
summary of significant accounting policies consistently followed by the
Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting
A-39
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains,
respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-capital or tax return of capital. At December 31, 1996,
the Portfolio did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .50%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $6,205,620 and $7,630,072,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $35,184, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $24,856 and net unrealized appreciation for Federal income tax purposes is
$10,328. Federal income tax cost basis of portfolio securities is $2,402,223 at
December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for
A-40
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT (CONTINUED)
PIMCO Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire
the one-third managing general partner interest in Oppenheimer Capital and the
1.0% general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-41
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 9.99 $ 9.20 $ 9.40
Income from investment operations:
Net investment income................... 0.54 0.58 0.17
Net realized and unrealized gain (loss)
on investments........................ (0.34) 0.79 (0.20)
---------- ---------- ----------
Total from investment operations...... 0.20 1.37 (0.03)
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.54) (0.58) (0.17)
Distributions to shareholders from net
realized capital gains................ (0.15) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.69) (0.58) (0.17)
---------- ---------- ----------
Net asset value, end of period.......... $ 9.50 $ 9.99 $ 9.20
========== ========== ==========
Total return(2)......................... 2.2% 15.2% (0.3%)
========== ========== ==========
Net assets, end of period............... $ 2,947,446 $ 4,284,455 $ 3,655,354
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.02%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 5.70%(4) 5.95% 6.26%(3)
---------- ---------- ----------
Portfolio turnover rate................. 138% 134% 7%
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,831,393.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.41% and
5.29%, respectively, for the year ended December 31, 1996, 1.52% and 5.43%,
respectively, for the year ended December 31, 1995 and 2.05% and 5.21%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
OCC ACCUMULATION TRUST -- BOND PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Bond Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-43
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 28.5%
Federal Home Loan Bank,
$ 105,000 5.21%, 2/13/97..................................................... $ 104,347
125,000 5.42%, 1/2/97...................................................... 124,981
Federal Home Loan Mortgage Corp.,
30,000 5.21%, 1/27/97..................................................... 29,887
615,000 5.40%, 1/2/97...................................................... 614,908
120,000 5.42%, 1/3/97...................................................... 119,964
195,000 5.52%, 1/8/97...................................................... 194,791
Federal National Mortgage Assoc.,
10,000 5.36%, 2/18/97..................................................... 9,928
305,000 5.42%, 1/17/97..................................................... 304,265
----------
Total U.S. Government Agency Notes (amortized cost - $1,503,071)... $1,503,071
----------
SHORT-TERM CORPORATE NOTES - 71.6%
AUTOMOTIVE - 7.2%
$ 130,000 Daimer-Benz North America Corp., 5.30%, 3/14/97.................... $ 128,622
125,000 Ford Motor Credit Co., 5.41%, 3/31/97.............................. 123,328
130,000 General Motors Acceptance Corp., 5.30%, 6/23/97.................... 126,689
----------
378,639
----------
BANKING - 19.8%
150,000 Abbey National North America, 5.33%, 3/11/97....................... 148,468
150,000 ABN-Amro North America Finance Inc., 5.40%, 3/6/97................. 148,560
100,000 Bayerische Vereinsbank AG, 5.33%, 1/8/97........................... 99,896
100,000 Commerzbank U.S. Finance Inc., 5.33%, 2/28/97...................... 99,141
150,000 Morgan (J.P.) & Co., Inc., 5.36%, 1/7/97........................... 149,866
110,000 Societe Generale N.A. Inc., 5.50%, 2/18/97......................... 110,000
150,000 Svenska Handelsbanken Inc., 5.53%, 1/16/97......................... 149,654
140,000 Toronto-Dominion Holdings USA Inc., 5.30%, 2/5/97.................. 139,279
----------
1,044,864
----------
CHEMICALS - 2.8%
150,000 U.S. Borax & Chemical Corp., 5.42%, 2/24/97........................ 148,781
----------
CONGLOMERATES - 2.1%
110,000 General Electric Capital Corp., 5.45%, 2/26/97..................... 109,067
----------
ENTERTAINMENT - 2.0%
105,000 Walt Disney Co., 5.30%, 1/6/97..................................... 104,923
----------
MACHINERY/ENGINEERING - 5.1%
120,000 Deere (John) Capital Corp., 5.30%, 4/14/97......................... 118,180
150,000 Pitney Bowes Credit Corp., 5.70%, 1/15/97.......................... 149,668
----------
267,848
----------
</TABLE>
A-44
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------- ----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 22.4%
$ 129,000 American Express Credit Corp., 5.30%, 1/2/97....................... $ 128,981
110,000 Beneficial Corp., 5.31%, 7/14/97................................... 106,852
140,000 Cheltenham & Gloucester Building Society PLC, 5.26%, 3/24/97....... 138,323
100,000 Eksportfinans A/S, 5.39%, 2/18/97.................................. 99,281
150,000 Goldman Sachs Group L.P., 5.43%, 1/13/97........................... 149,729
150,000 Household Finance Corp., 5.42%, 1/6/97............................. 149,887
130,000 Merrill Lynch & Co., Inc., 5.34%, 1/21/97.......................... 129,614
130,000 Morgan Stanley Group, Inc., 5.43%, 1/15/97......................... 129,726
150,000 USAA Capital Corp., 5.32%, 2/24/97................................. 148,803
----------
1,181,196
----------
SOVEREIGN - 2.8%
150,000 Sweden (Kingdom of), 5.30%, 2/3/97................................. 149,271
----------
TECHNOLOGY - 5.2%
130,000 IBM Credit Corp., 5.28%, 3/17/97................................... 128,570
150,000 Motorola Credit Corp., 5.23%, 2/20/97.............................. 148,910
----------
277,480
----------
TELECOMMUNICATIONS - 2.2%
120,000 Ameritech Corp., 5.30%, 3/31/97.................................... 118,428
----------
Total Short-Term Corporate Notes (amortized cost - $3,780,497)..... $3,780,497
----------
Total Investments (amortized cost - $5,283,568)............ 100.1% $5,283,568
Other Liabilities in Excess of Other Assets................ (0.1) (4,526)
----- ----------
Total Net Assets........................................... 100.0% $5,279,042
===== =========
</TABLE>
See accompanying notes to financial statements.
A-45
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost - $5,283,568).............................. $5,283,568
Cash............................................................................. 10,094
Interest receivable.............................................................. 2,235
Other assets..................................................................... 331
----------
Total Assets................................................................... 5,296,228
----------
LIABILITIES
Investment advisory fee payable.................................................. 1,090
Payable for fund shares redeemed................................................. 446
Other payables and accrued expenses.............................................. 15,650
----------
Total Liabilities.............................................................. 17,186
----------
Total Net Assets............................................................... $5,279,042
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 52,791
Paid-in-capital in excess of par................................................. 5,226,264
Accumulated net realized loss on investments..................................... (13)
----------
Total Net Assets............................................................... $5,279,042
==========
Fund shares outstanding.......................................................... 5,279,054
----------
Net asset value per share........................................................ $ 1.00
==========
</TABLE>
See accompanying notes to financial statements.
A-46
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $222,268
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 16,388
Custodian fees (note 1G)........................................................ 10,779
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,066
Legal fees...................................................................... 1,923
Reports and notices to shareholders............................................. 951
Miscellaneous................................................................... 3,703
--------
Total operating expenses..................................................... 53,119
Less: Investment advisory fees waived (note 2)............................... (11,550)
Less: Expense offset arrangement (note 1G)................................... (717)
--------
Net operating expenses.................................................. 40,852
--------
Net investment income................................................... 181,416
REALIZED LOSS ON INVESTMENTS - NET
Net realized loss on investments................................................ (14)
--------
Net increase in net assets resulting from operations.............................. $181,402
========
</TABLE>
See accompanying notes to financial statements.
A-47
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 181,416 $ 203,353
Net realized gain (loss) on investments.................... (14) 47
----------- -----------
Net increase in net assets resulting from
operations.......................................... 181,402 203,400
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (181,416) (203,353)
Net realized gains......................................... (46) --
----------- -----------
Total dividends and distributions to shareholders..... (181,462) (203,353)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 6,146,104 4,346,773
Reinvestment of dividends and distributions................ 182,704 201,653
Cost of shares redeemed.................................... (5,405,790) (3,711,915)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 923,018 836,511
----------- -----------
Total increase in net assets..................... 922,958 836,558
NET ASSETS
Beginning of year.......................................... 4,356,084 3,519,526
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 5,279,042 $ 4,356,084
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 6,146,104 4,346,773
Issued in reinvestment of dividends and distributions...... 182,704 201,653
Redeemed................................................... (5,405,790) (3,711,915)
----------- -----------
Net increase.......................................... 923,018 836,511
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-48
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio, and the
Money Market Portfolio (the "Portfolio"). OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Portfolio securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at cost on
the date of purchase and thereafter assuming a constant dollar amortization to
maturity of the difference between the principal amount due at maturity and the
initial cost of the security.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required. Federal income tax cost basis of
portfolio securities is the same as for financial reporting purposes.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A-49
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with the
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .40%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales/maturities of
investment securities, were $46,988,455 and $46,273,740, respectively.
(4) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-50
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................... 0.04 0.05 0.01
Net realized gain (loss) on
investments........................... (0.00) 0.00 --
---------- ---------- ----------
Total from investment operations...... 0.04 0.05 0.01
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.04) (0.05) (0.01)
Distributions to shareholders from net
realized capital gains................ (0.00) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.04) (0.05) (0.01)
---------- ---------- ----------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total return(2)......................... 4.5% 5.1% 1.2%
========== ========== ==========
Net assets, end of period............... $ 5,279,042 $ 4,356,084 $ 3,519,526
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.01%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 4.43%(4) 4.94% 4.13%(3)
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,097,126.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.30% and
4.13%, respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Money Market Portfolio (one of
the seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-52
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------
<C> <S> <C> <C>
U.S. TREASURY NOTES - 36.3%
$ 100,000 5.75%, 10/31/00.................................................... $ 98,672
475,000 6.50%, 8/15/97..................................................... 477,822
390,000 6.50%, 10/15/06.................................................... 392,133
125,000 7.25%, 5/15/04..................................................... 131,523
140,000 7.375%, 11/15/97................................................... 142,012
----------
Total U.S. Treasury Notes (cost - $1,242,934)...................... $1,242,162
----------
U.S. GOVERNMENT AGENCY NOTES - 62.0%
$ 75,000 Federal Farm Credit Bank, 8.65%, 10/1/99............................. $ 79,629
Federal Home Loan Bank,
60,000 6.94%, 3/14/97..................................................... 60,169
100,000 8.09%, 12/28/04.................................................... 108,781
155,000 8.60%, 8/25/99..................................................... 164,325
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03..................................................... 172,758
125,000 7.75%, 11/7/01..................................................... 131,973
150,000 8.115%, 1/31/05.................................................... 163,266
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98.................................................... 59,597
20,000 5.46%, 1/3/97...................................................... 19,994
20,000 5.46%, 1/7/97...................................................... 19,982
125,000 8.50%, 2/1/05...................................................... 131,426
230,000 8.80%, 7/25/97..................................................... 234,133
55,000 9.20%, 6/10/97..................................................... 55,798
150,000 9.20%, 9/11/00..................................................... 164,274
150,000 Private Export Funding Corp., 9.10%, 10/30/98........................ 157,868
Student Loan Marketing Assoc.
75,000 7.00%, 3/3/98...................................................... 76,008
100,000 7.20%, 11/9/00..................................................... 103,047
Tennessee Valley Authority,
150,000 6.00%, 11/1/00..................................................... 148,430
65,000 8.375%, 10/1/99.................................................... 68,554
----------
Total U.S. Government Agency Notes (cost - $2,103,674)............. $2,120,012
----------
Total Investments (cost - $3,346,608)....................... 98.3% $3,362,174
Other Assets in Excess of Other Liabilities................. 1.7 59,824
----- ----------
Total Net Assets............................................ 100.0% $3,421,998
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-53
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $3,346,608)....................................... $3,362,174
Cash............................................................................ 11,662
Interest receivable............................................................. 63,513
Receivable from fund shares sold................................................ 6,026
Other assets.................................................................... 203
----------
Total Assets.................................................................. 3,443,578
----------
LIABILITIES
Investment advisory fee payable................................................. 4,337
Payable for fund shares redeemed................................................ 1,988
Other payables and accrued expenses............................................. 15,255
----------
Total Liabilities............................................................. 21,580
----------
Total Net Assets.............................................................. $3,421,998
==========
NET ASSETS
Par value ($.01 per share)...................................................... $ 3,297
Paid-in-capital in excess of par................................................ 3,411,026
Accumulated net realized loss on investments.................................... (7,891)
Net unrealized appreciation on investments...................................... 15,566
----------
Total Net Assets.............................................................. $3,421,998
==========
Fund shares outstanding......................................................... 329,735
----------
Net asset value per share....................................................... $ 10.38
==========
</TABLE>
See accompanying notes to financial statements.
A-54
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $153,307
--------
OPERATING EXPENSES
Custodian fees (note 1G)........................................................ 17,308
Investment advisory fees (note 2)............................................... 14,797
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,044
Legal fees...................................................................... 1,753
Reports and notices to shareholders............................................. 737
Miscellaneous................................................................... 3,802
--------
Total operating expenses..................................................... 57,750
Less: Investment advisory fees waived and expenses assumed (note 2).......... (34,102)
Less: Expense offset arrangement (note 1G)................................... (394)
--------
Net operating expenses.................................................. 23,254
--------
Net investment income................................................... 130,053
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized loss on investments................................................ (7,891)
Net change in unrealized appreciation (depreciation) on investments............. (26,424)
--------
Net realized loss and change in unrealized appreciation (depreciation) on
investments................................................................. (34,315)
--------
Net increase in net assets resulting from operations.............................. $ 95,738
========
</TABLE>
See accompanying notes to financial statements.
A-55
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income..................................... $ 130,053 $ 46,710
Net realized gain (loss) on investments................... (7,891) 7,795
Net change in unrealized appreciation (depreciation) on
investments............................................. (26,424) 41,990
----------------- --------------------
Net increase in net assets resulting from
operations......................................... 95,738 96,495
----------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (130,053) (46,710)
Net realized gains........................................ -- (7,795)
----------------- --------------------
Total dividends and distributions to shareholders.... (130,053) (54,505)
----------------- --------------------
FUND SHARE TRANSACTIONS
Net proceeds from sales................................... 2,180,216 1,442,074
Reinvestment of dividends and distributions............... 130,663 53,894
Cost of shares redeemed................................... (297,024) (95,500)
----------------- --------------------
Net increase in net assets from fund share
transactions....................................... 2,013,855 1,400,468
----------------- --------------------
Total increase in net assets.................... 1,979,540 1,442,458
NET ASSETS
Beginning of period....................................... 1,442,458 0
----------------- --------------------
End of period (including undistributed net investment
income of $0 and $0, respectively)...................... $ 3,421,998 $1,442,458
============== ===============
SHARES ISSUED AND REDEEMED
Issued.................................................... 209,939 139,749
Issued in reinvestment of dividends and distributions..... 12,589 5,140
Redeemed.................................................. (28,592) (9,090)
----------------- --------------------
Net increase......................................... 193,936 135,799
============== ===============
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-56
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as amended, as a
diversified, open-ended management investment company. The Trust is authorized
to issue an unlimited number of seven classes of shares of beneficial interest
at $.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio (the
"Portfolio") and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The U.S. Government Income Portfolio one of the Trust's
seven portfolios, commenced operations on January 3, 1995. The Trust is an
investment vehicle for variable annuity and variable life insurance contracts of
various life insurance companies, and qualified pension and retirement plans.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and
A-57
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
accumulated earnings and profits for Federal income tax purposes, they are
reported as distributions of paid-in-capital or tax return of capital. At
December 31, 1996, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .60%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee and to assume any necessary expenses to limit total operating expenses of
the Portfolio to 1.00% (net of expense offsets) of average daily net assets on
an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $2,669,452 and $705,798,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $22,879, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $9,001 and net unrealized appreciation for Federal income tax purposes is
$13,878. Federal income tax cost basis of portfolio securities is $3,348,296 at
December 31, 1996.
(5) CAPITAL LOSS CARRY-FORWARD
For the year ended December 31, 1996, the Portfolio incurred net realized
capital losses of $6,203 which are available as a reduction against future net
capital gains realized before the end of fiscal year 2004 to the extent provided
by regulations. To the extent that this capital loss carry-forward is used to
offset future net capital gains, it is possible that gains so offset will not be
distributed to shareholders.
(6) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock
A-58
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(6) SUBSEQUENT EVENT (CONTINUED)
Exchange and of which Oppenheimer Financial Corp. is the sole general partner,
owns the remaining two-thirds interest. On February 13, 1997, PIMCO Advisors
L.P., a registered investment adviser, signed a definitive agreement with
Oppenheimer Group, Inc. and its subsidiary Oppenheimer Financial Corp. for PIMCO
Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire the
one-third managing general partner interest in Oppenheimer Capital and the 1.0%
general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-59
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 10.62 $ 10.00
---------- ----------
Income from investment operations:
Net investment income.................................. 0.55 0.60
Net realized and unrealized gain (loss) on
investments.......................................... (0.24) 0.68
---------- ----------
Total from investment operations..................... 0.31 1.28
---------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.55) (0.60)
Distributions to shareholders from net realized capital
gains................................................ -- (0.06)
---------- ----------
Total dividends and distributions to shareholders.... (0.55) (0.66)
---------- ----------
Net asset value, end of period......................... $ 10.38 $ 10.62
========== ==========
Total return(2)........................................ 3.0% 13.1%
========== ==========
Net assets, end of period.............................. $ 3,421,998 $1,442,458
---------- ----------
Ratio of net operating expenses to average net
assets(6)............................................ 0.96%(4,5) 0.75%(3)
---------- ----------
Ratio of net investment income to average net
assets(6)............................................ 5.27%(4) 5.75%(3)
---------- ----------
Portfolio turnover rate................................ 31% 65%
---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $2,466,244.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived all of its fees and
assumed a portion of the Portfolio's operating expenses. Additionally, for
the year ended December 31, 1996, the Portfolio benefited from an expense
offset arrangement with its custodian bank. If such waivers, assumptions and
expense offsets had not been in effect, the ratios of net operating expenses
to average daily net assets and the ratios of net investment income to
average daily net assets would have been 2.34% and 3.87%, respectively, for
the year ended December 31, 1996, and 4.73% and 1.77%, annualized,
respectively for the period January 3, 1995 (commencement of operations) to
December 31, 1995.
A-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- U.S. Government Income Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the U.S. Government Income
Portfolio (one of the seven portfolios constituting OCC Accumulation Trust,
hereafter referred to as the "Portfolio") at December 31, 1996, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and for the period January 3,
1995 (commencement of operations) through December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-61
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 9.3%
US$1,585,000 Federal Home Loan Bank, 5.25%, 1/2/97 (cost - $1,584,769).......... $ 1,584,769
-------
CONVERTIBLE CORPORATE NOTES - 1.1%
HONG KONG - .2%
BANKING - .2%
40,000 Bangkok Bank Public Co., 3.25%, 3/3/04............................. $ 39,150
-------
JAPAN - .9%
BANKING - .9%
130,000 Mitsubishi Bank Ltd., 3.50%, 11/30/02.............................. 138,450
-------
Total Convertible Corporate Notes (cost-$188,795).................. $ 177,600
-------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 87.2%
AUSTRALIA - .6%
PAPER PRODUCTS - .6%
17,000 WMC Ltd. .......................................................... $ 107,154
-------
AUSTRIA - .3%
AIRPORTS - .3%
900 Flughafen Wein AG.................................................. 45,879
-------
BERMUDA - 4.5%
INSURANCE - 4.5%
12,200 ACE Ltd. .......................................................... 733,525
800 EXEL Ltd. ......................................................... 30,300
-------
763,825
-------
BRAZIL - 1.5%
BANKING - .6%
6,000 Bompreco Supermecados Norde*....................................... 108,000
-------
PAPER PRODUCTS - .3%
6,200 Aracruz Celulose SA................................................ 51,150
-------
TEXTILES/APPAREL - .3%
150 Compahnia de Tecidos Norte de Minas-Conteminas..................... 47,870
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
90 Compahnia Cervejaria Brahma........................................ 49,196
-------
Total Brazilian Common Stocks...................................... 256,216
-------
CANADA - 2.1%
ELECTRONICS - .5%
11,000 CAE, Inc. ......................................................... 83,145
-------
</TABLE>
A-62
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
ENERGY - .6%
1,600 Precision Drilling Corp.*.......................................... $ 55,737
1,100 Suncor, Inc. ...................................................... 45,468
-------
101,205
-------
PRINTING/PUBLISHING - .3%
2,150 Thomson Corp. ..................................................... 47,261
-------
SECURITY/INVESTIGATION - .4%
3,500 Unican Security Systems Ltd. ...................................... 77,704
-------
TRANSPORTATION - .3%
1,875 Canadian Pacific Ltd. ............................................. 49,638
-------
Total Canadian Common Stocks....................................... 358,953
-------
CZECHOSLOVAKIA - .5%
TELECOMMUNICATIONS - .5%
700 SPT Telekom AS*.................................................... 87,149
-------
FINLAND - 1.7%
DRUGS/MEDICAL PRODUCTS - .3%
7,600 Oy Tamro AB........................................................ 50,722
-------
TELECOMMUNICATIONS - 1.4%
4,000 Oy Nokia AB........................................................ 231,304
-------
Total Finnish Common Stocks........................................ 282,026
-------
FRANCE - 3.5%
ELECTRONICS - .3%
1,159 Schneider SA....................................................... 53,589
-------
ENERGY - .7%
1,516 Total SA........................................................... 123,302
-------
INSURANCE - 1.1%
1,500 AXA................................................................ 95,404
2,400 Scor SA............................................................ 84,417
-------
179,821
-------
MANUFACTURING - .4%
1,356 Michelin (CGDE).................................................... 73,203
-------
MISCELLANEOUS FINANCIAL SERVICES - .1%
800 Compagnie Financiere de Paris...................................... 24,100
-------
POWER/UTILITIES - .5%
632 Compagnie Generale des Eaux........................................ 78,323
-------
</TABLE>
A-63
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
TECHNOLOGY - .4%
1,000 SGS-Thomson Microelectronics N.V.*................................. $ 70,733
-------
Total French Common Stocks......................................... 603,071
-------
GERMANY - 3.3%
CHEMICALS - .7%
900 SGL Carbon AG...................................................... 113,465
-------
COMPUTER SERVICES - .8%
1,000 SAP AG............................................................. 136,145
-------
CONSUMER PRODUCTS - .7%
1,300 Adidas AG.......................................................... 112,360
-------
DRUGS/MEDICAL PRODUCTS - .4%
1,150 Gehe AG............................................................ 73,613
-------
INSURANCE - .7%
160 Koelnische Rueckversicherungs AG................................... 119,574
-------
Total German Common Stocks......................................... 555,157
-------
HONG KONG - 1.4%
BANKING - .6%
180,000 Manhattan Credit Card Co., Ltd. ................................... 91,344
-------
CONSUMER PRODUCTS - .6%
280,000 Yue Yuen Industrial Holdings....................................... 106,794
-------
WHOLESALE - .2%
110,000 China Hong Kong Photo Products Holdings Ltd. ...................... 36,977
-------
Total Hong Kong Common Stocks...................................... 235,115
-------
HUNGARY - 1.0%
CONGLOMERATES - .5%
10,450 Benpres Holdings Corp.*............................................ 84,835
-------
DRUGS/MEDICAL PRODUCTS - .5%
1,550 Gedeon Richter Ltd., GDR........................................... 90,025
-------
Total Hungarian Common Stocks...................................... 174,860
-------
INDONESIA - .1%
WHOLESALE - .1%
15,000 PT Tigaraksa Satria................................................ 20,957
-------
ITALY - 1.6%
CONSUMER PRODUCTS - .8%
6,500 Bulgari S.p.A. .................................................... 131,971
-------
</TABLE>
A-64
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ITALY (CONTINUED)
TELECOMMUNICATIONS - .8%
32,000 Telecom Italia S.p.A. ............................................. $ 62,439
49,000 Telecom Italia Mobile S.p.A.*...................................... 69,931
-------
132,370
-------
Total Italian Common Stocks........................................ 264,341
-------
JAPAN - 9.5%
AUTOMOTIVE - 1.0%
6,000 Calsonic Corp. .................................................... 33,365
3,000 Honda Motor Co., Ltd. ............................................. 85,744
4,000 Murakami Corp. .................................................... 47,319
-------
166,428
-------
BANKING - .9%
600 Aeon Credit Service Co., Ltd. ..................................... 37,302
22,000 Daiwa Bank Ltd. ................................................... 114,930
-------
152,232
-------
BUILDING & CONSTRUCTION - .7%
3,000 Aoki Marine Co., Ltd. ............................................. 14,765
3,000 Maeda Corp. ....................................................... 22,200
1,000 Nichiei Co., Ltd. ................................................. 73,828
-------
110,793
-------
COMPUTER SERVICES - .2%
1,000 Konami Co., Ltd. .................................................. 34,107
-------
CONGLOMERATES - .2%
2,000 Inaba Denkisangyo Co. ............................................. 38,339
-------
CONSUMER PRODUCTS - .9%
7,000 Canon, Inc. ....................................................... 154,736
-------
ELECTRICAL ENGINEERING - .2%
3,100 Kinden Corp. ...................................................... 39,349
-------
ELECTRONICS - 2.5%
700 Kyocera Corp. ADR ................................................. 85,400
8,000 Mitsubishi Electric Corp. ......................................... 47,664
3,000 Omron Corp. ....................................................... 56,472
1,000 Rohm Co. .......................................................... 65,625
4,000 Sodick Co. ........................................................ 33,158
2,000 Sony Corp. ........................................................ 131,077
-------
419,396
-------
INSURANCE - .2%
9,000 Fuji Fire & Marine Insurance....................................... 33,650
-------
</TABLE>
A-65
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
MANUFACTURING - .2%
5,000 Japan Synthetic Rubber............................................. $ 32,812
-------
METALS/MINING - .6%
22,000 Sumitomo Metal Industries.......................................... 54,140
3,000 Toho Titanium*..................................................... 43,520
-------
97,660
-------
MISCELLANEOUS FINANCIAL SERVICES - .6%
2,000 Credit Saison Co., Ltd. ........................................... 44,728
300 Shohkoh Fund....................................................... 65,279
-------
110,007
-------
POWER/UTILITIES - .5%
4,000 Kyushu Electric Power.............................................. 77,714
-------
RETAIL - .4%
9,000 Maruetsu........................................................... 61,471
-------
SECURITY/INVESTIGATION - .2%
4,000 Toyo Tec Co. Ltd. ................................................. 38,339
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
3,000 Mikuni Coca-Cola Bottling.......................................... 38,857
-------
Total Japanese Common Stocks....................................... 1,605,890
-------
LICHTENSTEIN - .2%
BANKING - .2%
65 Liechtenstein Global Trust AG...................................... 33,314
-------
MEXICO - .7%
BUILDING & CONSTRUCTION - .3%
11,000 Corporacion GEO, SA de CV*......................................... 54,217
-------
CONGLOMERATES - .4%
14,000 Alfa S.A. de CV*................................................... 64,647
-------
Total Mexican Common Stocks........................................ 118,864
-------
NETHERLANDS - 1.8%
BUILDING & CONSTRUCTION - .2%
800 Kondor Wessells Groep NV........................................... 32,389
-------
IMPORTING/EXPORTING - .4%
753 Hagemeyer NV....................................................... 60,231
-------
MISCELLANEOUS FINANCIAL SERVICES - .5%
2,478 ING Groep NV....................................................... 89,274
-------
</TABLE>
A-66
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS (CONTINUED)
PRINTING/PUBLISHING - .7%
5,800 Ver Ned Uitgevers.................................................. $ 121,274
-------
Total Netherlands Common Stocks.................................... 303,168
-------
NEW ZEALAND - .4%
FOOD SERVICES - .4%
160,392 AFFCO Holdings Ltd. ............................................... 70,303
-------
NORWAY - .5%
BANKING - .5%
12,700 Fokus Bank AS...................................................... 86,531
-------
SINGAPORE - .6%
PRINTING/PUBLISHING - .6%
5,000 Singapore Press Holdings Ltd. ..................................... 98,621
-------
SOUTH KOREA - .4%
TELECOMMUNICATIONS - .4%
5,150 Korea Mobile Telecom ADR........................................... 66,306
-------
SPAIN - 2.0%
BANKING - .6%
2,400 Corporacion Bancaria de Espana SA.................................. 107,406
-------
ENERGY - .7%
2,900 Repsol SA.......................................................... 111,242
-------
MANUFACTURING - .7%
1,800 Vidrala SA......................................................... 124,506
-------
Total Spanish Common Stocks........................................ 343,154
-------
SWEDEN - 3.4%
BANKING - .5%
2,700 Nordbanken AB*..................................................... 81,753
-------
DRUGS & MEDICAL PRODUCTS - .6%
1,900 ASTRA AB........................................................... 93,887
-------
MACHINERY/ENGINEERING - 1.7%
750 ABB AB............................................................. 84,679
6,500 Atlas Copco AB..................................................... 157,260
3,000 Kalmar Industries AB............................................... 49,927
-------
291,866
-------
PAPER PRODUCTS - .6%
3,750 AssiDoman AB....................................................... 104,474
-------
Total Swedish Common Stocks........................................ 571,980
-------
</TABLE>
A-67
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWITZERLAND - 3.1%
BANKING - .6%
1,050 CS Holding AG...................................................... $ 107,863
-------
BUILDING & CONSTRUCTION - .4%
100 Holderbank Financiere Glaris AG.................................... 71,423
-------
DRUGS & MEDICAL PRODUCTS - 1.7%
120 Ares-Serono Group.................................................. 114,486
150 NOVARTIS AG*....................................................... 171,797
-------
286,283
-------
MANUFACTURING - .4%
25 Sig Schweizerische Industrie - Gesellschaft Holding AG............. 63,317
-------
Total Swiss Common Stocks.......................................... 528,886
-------
THAILAND - .6%
WHOLESALE - .6%
24,000 Siam Makro Public Co., Ltd. ....................................... 105,747
-------
UNITED KINGDOM - 4.9%
AUTOMOTIVE - .6%
26,863 LucasVarity PLC*................................................... 102,399
-------
COMPUTER SERVICES - .4%
26,000 Amstrad PLC........................................................ 65,256
-------
ELECTRONICS - .9%
8,000 Siebe PLC.......................................................... 148,569
-------
MANUFACTURING - .3%
32,000 Bridon PLC......................................................... 55,371
-------
METALS/MINING - .4%
12,000 Antofagasta Holdings PLC........................................... 69,899
-------
MISCELLANEOUS FINANCIAL SERVICES - .8%
18,000 Lloyds TSB Group PLC............................................... 132,757
-------
RETAIL - 1.5%
13,116 Dixon Group PLC.................................................... 122,015
19,515 Safeway, Inc. ..................................................... 135,406
-------
257,421
-------
Total United Kingdom Common Stocks................................. 831,672
-------
UNITED STATES - 37.0%
AEROSPACE/DEFENSE - 6.3%
3,000 Lockheed Martin Corp. ............................................. 274,500
12,500 McDonnell Douglas Corp. ........................................... 800,000
-------
1,074,500
-------
</TABLE>
A-68
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
BANKING - 6.1%
4,000 Citicorp........................................................... $ 412,000
2,300 Wells Fargo & Co. ................................................. 620,425
-------
1,032,425
-------
BUILDING & CONSTRUCTION - .2%
2,000 Newport News Shipbuilding, Inc.*................................... 30,000
-------
CHEMICALS - 5.0%
5,000 du Pont (E.I.) de Nemours & Co. ................................... 471,875
4,000 Hercules, Inc. .................................................... 173,000
5,000 Monsanto Co. ...................................................... 194,375
-------
839,250
-------
CONGLOMERATES - 2.7%
10,000 Tenneco, Inc. ..................................................... 451,250
-------
CONSUMER PRODUCTS - 1.8%
11,000 Mattel, Inc. ...................................................... 305,250
-------
DRUGS & MEDICAL PRODUCTS - 2.0%
8,000 Becton, Dickinson & Co. ........................................... 347,000
-------
ENTERTAINMENT - .2%
2,000 Harrah's Entertainment, Inc.*...................................... 39,750
-------
FOOD SERVICES - 1.6%
6,000 McDonald's Corp. .................................................. 271,500
-------
METALS/MINING - .7%
4,000 Freeport McMoRan Copper & Gold (Class B)........................... 119,500
-------
MISCELLANEOUS FINANCIAL SERVICES - 3.9%
6,000 Federal Home Loan Mortgage Corp. .................................. 660,750
-------
PAPER PRODUCTS - .3%
1,100 Champion International, Inc. ...................................... 47,575
-------
RAILROADS - 1.4%
4,000 Union Pacific Corp. ............................................... 240,500
-------
TECHNOLOGY - 1.4%
1,000 Intel Corp. ....................................................... 130,938
4,000 National Semiconductor Corp.*...................................... 97,500
-------
228,438
-------
TELECOMMUNICATIONS - 2.4%
1,300 Loral Space & Communications*...................................... 23,888
30,000 Tele-Communications, Inc. (Class A)*............................... 391,875
-------
415,763
-------
</TABLE>
A-69
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
TRANSPORTATION - 1.0%
2,000 AMR Corp.*......................................................... $ 176,250
-----------
Total United States Common Stocks.................................. 6,279,701
-----------
Total Common Stocks (cost - $13,393,679)........................... $14,798,840
-----------
Total Investments (cost - $15,167,243)........................ 97.6% $16,561,209
Other Assets in Excess of Other Liabilities................... 2.4 411,279
----- -----------
Total Net Assets.............................................. 100.0% $16,972,488
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-70
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $15,167,243)..................................... $16,561,209
Foreign currencies (cost - $339,499)........................................... 335,801
Receivable from investments sold............................................... 69,056
Receivable from fund shares sold............................................... 43,500
Dividends receivable........................................................... 10,619
Foreign withholding taxes reclaimable.......................................... 3,653
Interest receivable............................................................ 1,412
Other assets................................................................... 483
-----------
Total Assets................................................................. 17,025,733
-----------
LIABILITIES
Due to custodian............................................................... 19,178
Investment advisory fees payable............................................... 7,840
Payable for investments purchased.............................................. 3,696
Foreign withholding taxes payable.............................................. 418
Other payables and accrued expenses............................................ 22,113
-----------
Total Liabilities............................................................ 53,245
-----------
Total Net Assets............................................................. $16,972,488
===========
NET ASSETS
Par value ($.01 per share)..................................................... $ 12,826
Paid-in-capital in excess of par............................................... 15,567,305
Accumulated undistributed net investment income................................ 2,107
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies................................ 1,390,250
-----------
Total Net Assets............................................................. $16,972,488
===========
Fund shares outstanding........................................................ 1,282,602
-----------
Net asset value per share...................................................... $ 13.23
-----------
</TABLE>
See accompanying notes to financial statements.
A-71
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $8,706)....................... $ 126,858
Interest..................................................................... 59,746
----------
Total investment income................................................... 186,604
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)........................................... 71,811
Custodian fees (note 1G)..................................................... 59,592
Auditing, consulting and tax return preparation fees......................... 12,394
Transfer and dividend disbursing agent fees.................................. 9,147
Legal fees................................................................... 2,083
Reports and notices to shareholders.......................................... 1,592
Miscellaneous................................................................ 9,757
----------
Total operating expenses.................................................. 166,376
Less: Investment advisory fees waived (note 2A)........................... (37,689)
Less: Expense offset arrangement (note 1G)................................ (15,447)
----------
Net operating expenses............................................... 113,240
----------
Net investment income................................................ 73,364
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS -- NET
Net realized gain on investments............................................. 85,039
Net realized loss on foreign currency transactions........................... (6,772)
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies................................................................ 1,247,855
----------
Net realized gain (loss) and change in unrealized appreciation
(depreciation) on investments and translation of other assets and
liabilities denominated in foreign currencies............................ 1,326,122
----------
Net increase in net assets resulting from operations........................... $1,399,486
==========
</TABLE>
See accompanying notes to financial statements.
A-72
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 73,364 $ 12,301
Net realized gain on investments............................ 85,039 57,143
Net realized loss on foreign currency transactions.......... (6,772) (2,877)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies............. 1,247,855 142,395
----------- -----------
Net increase in net assets resulting from operations... 1,399,486 208,962
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (60,776) (8,174)
Net realized gains on investments........................... (89,998) (57,143)
----------- -----------
Total dividends and distributions to shareholders...... (150,774) (65,317)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 16,110,547 2,683,554
Reinvestment of dividends and distributions................. 150,774 65,317
Cost of shares redeemed..................................... (3,428,866) (1,195)
----------- -----------
Net increase in net assets from fund share
transactions......................................... 12,832,455 2,747,676
----------- -----------
Total increase in net assets...................... 14,081,167 2,891,321
NET ASSETS
Beginning of period......................................... 2,891,321 0
----------- -----------
End of period (including undistributed net investment income
of $2,107 and 4,127, respectively)........................ $16,972,488 $2,891,321
=========== ===========
SHARES ISSUED AND REDEEMED
Issued...................................................... 1,304,431 243,412
Issued in reinvestment of dividends and distributions....... 11,415 5,636
Redeemed.................................................... (282,190) (102)
----------- -----------
Net increase........................................... 1,033,656 248,946
=========== ===========
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-73
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned (99%)
subsidiary of Oppenheimer Capital, serves as the Trust's investment adviser. The
Global Equity Portfolio, (the "Portfolio"), one of the Trust's seven portfolios,
commenced operations on March 1, 1995. The Trust is an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies and qualified pension and retirement plans. The following is a summary
of significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities listed on a U.S. or foreign stock exchange or traded
in the over-the-counter National Market System are valued each business day at
the last reported sale price; if there are no such reported sales, the
securities are valued at their last quoted bid price. Other securities traded
over-the-counter and not part of the National Market System are valued at the
last quoted bid price. Investment debt securities (other than short-term
obligations) are valued each business day by an independent pricing service
(approved by the Board of Trustees) using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of sixty
days or less are valued at amortized cost or amortized value, which approximates
market value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith by
the Board of Trustees. Investments in countries in which the Portfolio may
invest may involve certain considerations and risks not typically associated
with domestic investments as a result of, among others, the possibility of
future political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold has
been determined on the basis of identified cost. Dividend income and other
distributions are recorded on the ex-dividend date, except certain dividends or
other distributions from foreign securities which are recorded as soon as the
information is available after the ex-dividend date. Interest income is accrued
as earned.
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are included
in the Portfolio's Statement of Operations. Since the net assets of the
Portfolio are
A-74
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSLATION (CONTINUED)
presented at the foreign exchange rates and market prices at the close of the
period, the Portfolio does not isolate that portion of the results of operations
arising as a result of changes in the exchange rates from fluctuations arising
from changes in the market price of securities.
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment: temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-
in-capital or tax return of capital.
The following table discloses the cumulative effect of differences
reclassified from accumulated net realized foreign currency loss and accumulated
net realized loss on investments to accumulated undistributed net investment
income:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET ACCUMULATED NET UNDISTRIBUTED
REALIZED FOREIGN REALIZED LOSS NET INVESTMENT
CURRENCY LOSS ON INVESTMENTS INCOME
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
$9,649 $4,959 ($14,608)
</TABLE>
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has agreed to waive that portion of the advisory fee necessary
to limit total operating expenses of the Portfolio to 1.25% (net of expense
offsets) of average daily net assets on an annual basis.
A-75
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $41,242, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $4,563.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996 purchases and sales of investment
securities, other than short-term securities, were $15,233,328 and $3,081,962,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $1,780,424, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $386,458 and net unrealized appreciation for Federal income tax purposes is
$1,393,966. Federal income tax cost basis of portfolio securities is $16,561,209
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-76
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 11.61 $ 10.00
----------- ----------
Income from investment operations:
Net investment income.................................. 0.04 0.05
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and translation of
other assets and liabilities denominated in foreign
currencies........................................... 1.70 1.83
----------- ----------
Total from investment operations..................... 1.74 1.88
----------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.05) (0.03)
Distributions to shareholders from net realized capital
gains................................................ (0.07) (0.24)
----------- ----------
Total dividends and distributions to shareholders.... (0.12) (0.27)
----------- ----------
Net asset value, end of period......................... $ 13.23 $ 11.61
=========== ==========
Total return(2)........................................ 15.0% 18.9%
=========== ==========
Net assets, end of period.............................. $16,972,488 $2,891,321
----------- ----------
Ratio of net operating expenses to average net
assets(5)............................................ 1.42%(3,4) 1.25%(6)
----------- ----------
Ratio of net investment income to average net
assets(5)............................................ 0.81%(3) 1.02%(6)
----------- ----------
Portfolio turnover rate................................ 40% 67%
----------- ----------
Average commission rate................................ $ 0.0254 --
----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Average net assets for the year ended December 31, 1996 were $9,072,948.
(4) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(5) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income (loss) to average daily net assets would have been 1.83%
and 0.22%, respectively, for the year ended December 31, 1996, and 3.94.%
and (1.67)%, annualized, respectively, for the period March 1, 1995
(commencement of operations) to December 31, 1995.
(6) Annualized.
A-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust - Global Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Portfolio (one of
the seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year then ended and for the period March 1, 1995 (commencement of
operations) through December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-78
<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>
<TABLE>
<S> <C>
EXHIBITS:
(1) (a) Declaration of Trust - Previously filed with Post-Effective
Amendment No. 3.
(b) Amendment to Declaration of Trust dated September 1, 1994 -
Previously filed with Post Effective Amendment No. 3.
(c) Amendment to Declaration of Trust dated September 16, 1994 -
Previously filed with Post-Effective Amendment No. 3.
(d) Amendment to Declaration of Trust dated April 22, 1996 -
Previously filed with Post-Effective Amendment No. 2.
(2) By-Laws of Registrant - Previously filed with Post-Effective
Amendment No. 3..
(3) Not Applicable.
(4) Not Applicable.
(5) Investment Advisory Agreement dated September 16, 1994 as amended
May 1, 1996 - Previously filed with Post Effective Amendment No.
2.
(6) Distribution Agreement - Previously filed with Post-Effective
Amendment No. 3.
(7) Not Applicable.
(8) Custody Agreement - Previously filed with Post-Effective
Amendment No. 3.
(9) (a) Transfer Agency and Service Agreement - Previously filed
with Post Effective Amendment No. 3.
(b) Participation AGreement for American Enterprise Life
Insurance Company - Previously filed with Post-Effective
Amendment No. 3.
(c) Participation Agreement for Connecticut General Life
Insurance Company and amendment dated August 30, 1996 -
Previously filed with Post-Effective Amendment No. 3.
(d) Participation Agreement for IL Annuity and Insurance
Company- Previously filed with Post Effective Amendment No. 2.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
(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 - Previously filed with Post-
Effective Amendment No. 3.
(g) Amendment to Fund Participation Agreement for Connecticut
General Life Insurance Company dated 4/23/97.
(h) Participation Agreement for Providentmutual Life dated
9/16/94.
(i) Participation Agreement for PRUCO Life Insurance Company of
Arizona dated 7/1/96.
(j) Participation Agreement for PRUCO Life Insurance Company of
New Jersey dated 1/1/97.
(k) Participation Agreement for Prudential Insurance of America.
(10) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and non-assessable -
Previously filed with Post-Effective Amendment No. 3.
(11) Consent of Independent Accountants.
(12) Not Applicable.
(13) Agreement relating to initial capital - Previously filed with
Post-Effective Amendment No. 3.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule showing computation of performance quotations provided
in response to Item 22 - Previously filed with Post-Effective
Amendment No. 3.
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
(17) Financial Data Schedules - Previously filed with Post-Effective
Amendment No. 3.
</TABLE>
C-4
<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
<TABLE>
<S> <C>
Number of Record
Holders as of
TITLE OF CLASS June 20, 1997
SHARES OF BENEFICIAL INTEREST
Equity Portfolio................................................6
Managed Portfolio..............................................15
Money Market Portfolio..........................................4
Small Cap Portfolio............................................15
Global Equity Portfolio.........................................5
U.S. Government Income Portfolio................................5
</TABLE>
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-5
<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 Other Business and Connections
OPCAP ADVISORS During the Past Two Years
Thomas E. Duggan, General Managing Director and General
Counsel & Secretary Counsel of Oppenheimer Capital;
General Counsel and Secretary of
Oppenheimer Capital Limited and
OCC Distributors.
Bernard H. Garil, President Director of Oppenheimer Capital
Trust Company.
Joseph M. La Motta, Chairman Chairman and Chief Executive
Officer of Oppenheimer Capital;
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 Officer Financial Officer of Oppenheimer
Capital; Director of Oppenheimer
Capital Trust Company; Treasurer
and Chief Financial Officer of
Oppenheimer Capital Limited and OCC
Distributors
C-6
<PAGE>
The address of OpCap Advisors is 200 Liberty Street, New York,
New York 10281.
<TABLE>
<S> <C>
ITEM 29. PRINCIPAL UNDERWRITER
(a) OCC Distributors acts as principal underwriter for the Registrant
and, OCC Cash Reserves, Inc.
(b) Set forth below is certain information pertaining to the partners
and officers of OCC Distributors, Registrant's Principal
Underwriter; the Principal Business Address of EACH IS ONE WORLD
FINANCIAL CENTER, NEW YORK, NEW YORK, 10281:
</TABLE>
<TABLE>
<S> <C> <C>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ------------------------ --------------------- ---------------------
Oppenheimer Capital General Partner None
Thomson Advisory Group Inc. General Partner None
Peter Muratore President None
Sheldon Siegel Treasurer Treasurer
Thomas E. Duggan Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF REQUIRED RECORDS -- RULE 31a-1
(Except those maintained by Custodian and Transfer Agent)
OpCap Advisors
One World Financial Center
New York, NY 10281
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
C-7
<PAGE>
(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-8
<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 3 day of July,1997.
OCC ACCUMULATION TRUST
s/Joseph M. La Motta
-----------------------------
Joseph M. La Motta, President
Attest:
s/Deborah Kaback
- --------------------------------------
Deborah Kaback, Secretary
Pursuant to the requirements of the Securities Act of 1933 this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
OCC ACCUMULATION TRUST
<TABLE>
<S> <C>
Date
s/Joseph M. La Motta July 3, 1997
- --------------------------------------
Joseph M. La Motta, President, Trustee
s/Paul Y. Clinton July 3, 1997
- --------------------------------------
Paul Y. Clinton, Trustee
s/Thomas W. Courtney July 3, 1997
- --------------------------------------
Thomas W. Courtney, Trustee
s/Lacy B. Herrmann July 3, 1997
- --------------------------------------
Lacy B. Herrmann, Trustee
s/George Loft July 3, 1997
- --------------------------------------
George Loft, Trustee
s/Deborah Kaback July 3, 1997
- --------------------------------------
Deborah Kaback, Secretary
s/Sheldon Siegel July 3, 1997
- --------------------------------------
Sheldon Siegel, Treasurer
</TABLE>
C-9
<PAGE>
OCC ACCUMULATION TRUST
INDEX TO EXHIBITS
<TABLE>
<S><C>
Exhibit No.
- -----------
(9) (g) AMENDMENT TO FUND PARTICIPATION AGREEMENT FOR CONNECTICUT
GENERAL LIFE INSURANCE COMPANY DATED 4/23/97.
(9) (h) PARTICIPATION AGREEMENT FOR PROVIDENTMUTUAL LIFE DATED 9/16/94.
(9) (i) PARTICIPATION AGREEMENT FOR PRUCO LIFE INSURANCE COMPANY OF ARIZONA
DATED 7/1/96.
(9) (j) PARTICIPATION AGREEMENT FOR PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
DATED 1/1/97.
(9) (k) PRUDENTIAL INSURANCE OF AMERICA PARTICIPATION AGREEMENT.
(11) CONSENT OF INDEPENDENT ACCOUNTANTS
</TABLE>
C-10
<PAGE>
APRIL 23, 1997 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 Variable Life Insurance Separate Account FE
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Amendment to the Agreement as of April 23, 1997.
OCC ACCUMULATION TRUST
By: /s/ Deborah Kaback
-------------------------------------
Name: Deborah Kaback
Title: Secretary
OCC DISTRIBUTORS
By: /s/ Thomas E. Duggan
-------------------------------------
Name: Thomas E. Duggan
Title: Secretary
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: /s/ Ian Glew
-------------------------------------
Name: Ian Glew
Title: Sr. Vice President-
Corporate Insurance
<PAGE>
PARTICIPATION AGREEMENT
By and Among
QUEST FOR VALUE ACCUMULATION TRUST
And
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
And
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
And
QUEST FOR VALUE DISTRIBUTORS
THIS AGREEMENT, effective the 16th day of September, 1994, by and
among PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA ("PLACA"), a
________ Corporation, on its own behalf and on behalf of each separate
account of PLACA named in Schedule 1 to this Agreement, as may be amended
from time to time, PROVIDENT MUTUAL LIFE INSURANCE COMPANY ("Provident
Mutual"; PLACA and Provident Mutual hereinafter collectively referred to as
the "Company"), a _____________ Corporation, on its own behalf and on behalf
of each separate account of Provident Mutual named in Schedule 1 to this
Agreement (PLACA and Provident Mutual separate accounts named in Schedule 1
hereinafter collectively 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").
<PAGE>
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving
as the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"),
dated February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a),
and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the
"1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and held by
variable annuity separate accounts and variable life insurance separate
accounts of both affiliated and unaffiliated Participating Insurance
Companies and qualified pension and retirement plans (hereinafter the "Mixed
and Shared Funding Exemptive Order");and
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 ________, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (hereinafter the
"1934 Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named
in Schedule 2 on behalf of the Account to fund the Contracts and the
Underwriter is authorized to sell such shares to unit investment trusts such
as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
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 notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable
on the Fund's shares. The Company hereby elects to receive all such dividends
and distributions as are payable on the
6
<PAGE>
Portfolio shares in the form of additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
dividends and distributions in cash. The Fund shall notify the Company of
the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act andthat the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall
7
<PAGE>
register and qualify the Contracts for sale in accordance with the securities
laws of the various states only if and to the extent deemed necessary by the
Company.
2.2. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts
under applicable provisions of the Internal Revenue Code and that it will make
every effort to maintain such treatment and that it will notify the Fund and
the Underwriter immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized
for issuance in accordance with applicable law and that the Fund is and shall
remain registered under the 1940 Act for as long as the Fund shares are sold.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and
to the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or
any successor or similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no
8
<PAGE>
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) complies with the
insurance laws and regulations of any state. The Company alone shall be
responsible for informing the Fund of any insurance restrictions imposed by
state insurance laws which are applicable to the Fund. To the extent feasible
and consistent with market conditions, the Fund will adjust its investments to
comply with the aforementioned state insurance laws upon written notice from
the Company of such requirements and proposed adjustments, it being agreed and
understood that in any such case the Fund shall be allowed a reasonable period
of time under the circumstances after receipt of such notice to make any such
adjustment.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act
or otherwise, although it may make such payments in the future. To the extent
that it decides to finance distribution expenses pursuant to Rule 12b-1, the
Fund undertakes to have its Board of Trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
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<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.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement,
Fund proxy materials and reports, setting in type, printing and distributing
the prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required
15
<PAGE>
by any federal or state law, all taxes on the issuance or transfer of the
Fund's shares, and any expenses permitted to be paid or assumed by the Fund
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will comply
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations in accordance with guidelines
provided by the Company prior to the execution of this Agreement and as
necessary thereafter. In the event of a breach of this Article VI by the Fund,
it will take all 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
16
<PAGE>
ruling, private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being managed;
(e) a difference in voting instructions given by Participating Insurance
Companies or by variable annuity contract and variable life insurance
contractowners; or (f) a decision by an insurer to disregard the voting
instructions of contractowners. The Board shall promptly inform the Company
if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of
persons who are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. As set forth in the Mixed and Shared
Funding Exemptive Order, the Company will report any potential or existing
conflicts of which it is aware to the Fund Board. The Company agrees to assist
the Fund Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the Fund
Board whenever contractowner voting instructions are disregarded. The Fund
Board shall record in its minutes or other appropriate records, all reports
received by it and all action with regard to a conflict.
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
17
<PAGE>
determined by a majority of the disinterested Directors), take whatever steps
are necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (1) withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another Portfolio
of the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contractowners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity
contractowners or variable life insurance contractowners, of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a change;
and (2) establishing a new registered management investment company or managed
separate account.
7.4. If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to such
Account. Any such withdrawal and termination must take place within 60 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 60 day period the Underwriter and Fund
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal
and termination must take place within 60 days after the Fund gives written
18
<PAGE>
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 or Quest Advisors be required to
establish a new funding medium for the Contracts. The Company shall not be
required by Section 7.3 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of
contractowners materially adversely affected by the irreconcilable material
conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so
that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Mixed and Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate
by the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive
Order) on terms and conditions materially different from those contained in
the Mixed and Shared Funding Exemptive Order, (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3 (T), as amended, and Rule
6e-3, as adopted, to the extent such
19
<PAGE>
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5
of this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Fund or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including reasonable legal and other
expenses), to which the indemnified parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon
the omission or the alleged omission to state
therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading in light of the circumstances in
which they were made; provided that this agreement
to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
registration
20
<PAGE>
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or
sales literature or other promotional material for
the Contracts (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company
(other than statements or representations contained
in the Fund registration statement, Fund
prospectus, Fund statement of additional information
or sales literature or other promotional material of
the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the
Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, Fund prospectus, statement
of additional information or sales literature or
other promotional material of the Fund or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made, if such a statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials or to
make any payments under the terms of this Agreement;
or
(v) arise out of any material breach of any
representation and/or warranty made by the Company
in this Agreement or arise out of or result from any
other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
21
<PAGE>
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter) or
litigation (including reasonable legal and other expenses) to which the
indemnified parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus or
statement of additional information for the Fund or
sales literature or other promotional material of the
Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify
shall not apply as to any indemnified party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information fur-
22
<PAGE>
nished to the Underwriter or Fund by or on behalf of
the Company for use in the registration statement,
prospectus or statement of additional information for
the Fund or in sales literature or other promotional
material of the Fund (or any amendment or supplement
thereto) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract or Fund registration statement, the Contract
or Fund prospectus, statement of additional
information, or sales literature or other promotional
material for the Contracts or of the Fund not supplied
by the Underwriter or the Fund or persons under the
control of the Underwriter or the Fund respectively)
or wrongful conduct of the Underwriter or the Fund or
persons under the control of the Underwriter or the
Fund respectively, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material covering the Contracts (or any
amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading in light of the circumstances in which
they were made, if such statement or omission was made
in reliance upon and in conformity with information
furnished to the Company by or on behalf of the
Underwriter or the Fund or persons under the control
of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification requirements and
procedures related thereto specified in Article VI of
this Agreement 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;
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<PAGE>
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter
may otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Contracts or the operation of the
Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect
to any claim made against a party entitled to indemnification under this
Article VIII ("indemnified party" for the purpose of this Section 8.3) unless
such indemnified party shall have notified the indemnifying party in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such indemnified party (or after such party shall have received notice of
such service on any designated agent), but failure to notify the indemnifying
party of any such claim shall not relieve the indemnifying party from any
liability which it may have to the indemnified party against whom such action
is brought under the indemnification provision of this Article VIII, except
to the extent that the failure to notify results in the failure of actual
notice to the indemnifying party and such indemnifying party is damaged
solely as a result of failure to give such notice. In case any such action
is brought against the
24
<PAGE>
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the indemnifying party to the
indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation, unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII
is due in accordance with its terms but for any
25
<PAGE>
reason is held to be unenforceable with respect to a party entitled to
indemnification ("indemnified party" for purposes of this Article VIII,
Section 8.4) pursuant to the terms of this Article VIII, then each party
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
parties to this Agreement in connection with the offering of Fund shares to
the Account and the acquisition, holding or sale of Fund shares by the
Account, or if such allocation is not permitted by applicable law, in such
proportions as is appropriate to reflect the relative net benefits referred
to above but also the relative fault of the parties to this Agreement in
connection with any actions that lead to such losses, claims, damages,
liabilities or litigations, as well as any other relevant equitable
considerations.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
26
<PAGE>
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the
requirements of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
administration of the Contracts, the operation of the Account, or the
purchase of the Fund shares, which would have a material adverse effect on
the Company's ability to perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's
ability to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having
an interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Portfolio shares of the Fund
in accordance with the terms of the Contracts for which those
27
<PAGE>
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
(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
28
<PAGE>
(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 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.
29
<PAGE>
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for
no reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions
of this Agreement as provided in paragraph (b) below, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate investments
in the Fund, redeem investments in the Fund and/or invest in the Fund upon
the making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.4 shall not apply to any terminations
under Article VII and the effect of such Article VII terminations shall be
governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions
of this Agreement shall remain in effect except for Section 10.1(a) and
thereafter the Fund, the Underwriter, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written notice
to the other party, such notice to be for a period that is reasonable under
the circumstances but, if given by the Fund or Underwriter, need not be for
more than 90 days.
30
<PAGE>
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
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
[Name]
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, PA 19103
31
<PAGE>
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
32
<PAGE>
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 as of the date and year first written above.
COMPANY:
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
SEAL By: ______________________________
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
SEAL By: _______________________________
FUND:
QUEST FOR VALUE ACCUMULATION TRUST
SEAL By: ______________________________
UNDERWRITER:
QUEST FOR VALUE DISTRIBUTORS
By: ______________________________
34
<PAGE>
SCHEDULE 1
Participation Agreement
Among
Quest for Value Accumulation Trust,
Providentmutual Life and Annuity Company of America,
Provident Mutual Life Insurance Company
and
Quest for Value Distributors
The following separate accounts of Providentmutual Life and Annuity
Company of America and Provident Mutual Life Insurance Company, respectively,
are permitted in accordance with the provisions of this Agreement to invest
in Portfolios of the Fund shown in Schedule 2:
(i) Providentmutual Life And Annuity Company of America:
- Providentmutual Variable Annuity Separate Account
(ii) Provident Mutual Life Insurance Company:
- Provident Mutual Variable Annuity Separate Account
[Date]
<PAGE>
SCHEDULE 2
Participation Agreement
Among
Quest for Value Accumulation Trust,
Providentmutual Life and Annuity Company of America,
Provident Mutual 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:
Equity Portfolio
Managed Portfolio
Small Cap Portfolio
[Date]
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
PRUCO LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 1st day of July 1996 by and
among PRUCO LIFE INSURANCE COMPANY, an Arizona Corporation (hereinafter the
"Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement, as may be amended from time to
time (each account referred to as the "Account"), OCC ACCUMULATION TRUST, an
open-end diversified management investment company organized under the laws of
the State of Massachusetts (hereinafter the "Fund") and OCC DISTRIBUTORS, a
Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity 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 Arizona, to set aside and
invest assets attributable to the Contracts; and
2
<PAGE>
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund.
For purposes of this Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. "Business
Day" shall mean any day on which
3
<PAGE>
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as
4
<PAGE>
Articles I, III, V, and VII of this Agreement are in effect to govern such
sales. The Fund shall make available upon written request from the Company (i)
a list of all other Participating Insurance Companies and (ii) a copy of the
Participation Agreement executed by any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
5
<PAGE>
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. If the Fund provides the Company with
materially incorrect share net asset value information through no fault of the
Company, the Company on behalf of the Account shall be entitled to an adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value. Any material error in the calculation of net asset value per
share, dividend or capital gain information shall be reported to the Company
promptly upon discovery.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
6
<PAGE>
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. 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
7
<PAGE>
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 maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
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
8
<PAGE>
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its
Board of Trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisors, is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
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
9
<PAGE>
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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request for use with prospective contractowners and applicants. The
Underwriter shall print and distribute, at the Fund's or Underwriter's expense,
as many copies of said prospectus as necessary for distribution to existing
contractowners or participants. If requested by the Company in lieu thereof,
the Fund shall provide such documentation including a final copy of a current
prospectus set in type, or, at the request of the Company, as a diskette, 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, prospectuses for
other mutual funds in which the Contracts may be invested and the Fund's new
10
<PAGE>
prospectus printed together in one document. In such case the Fund shall bear
its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require and
shall bear the costs of distributing them to existing contractowners or
participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
(iii) vote Fund shares held in the Account for which no
timely instructions have been received, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received from the Company's
contractowners or participants;
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.
11
<PAGE>
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Fund calculates voting privileges
in a manner consistent with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least ten 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 ten
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
12
<PAGE>
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 ten business days prior to its use. No such material shall be
used if the Company reasonably objects in writing to such use within ten
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy 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.
13
<PAGE>
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any
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required exemptive orders or other regulatory approvals, the Underwriter may
make payments to the Company or to the underwriter for the Contracts if and in
amounts agreed to by the Underwriter in writing. Currently, no such payments
are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required by any
federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
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.
15
<PAGE>
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 has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report
16
<PAGE>
any potential or existing conflicts of which it is aware to the Fund Board. The
Company agrees to assist the Fund Board in carrying out its responsibilities
under the Mixed and Shared Funding Exemptive Order, by providing the Fund Board
with all information reasonably necessary for the Fund Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Fund Board whenever contractowner voting instructions are
disregarded. The Fund Board shall record in its minutes or other appropriate
records, all reports received by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be 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
17
<PAGE>
position or would preclude a majority vote, the Company may be required, at
the Fund's election, to withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal
and termination must take place within 60 days after the Fund gives written
notice to the Company that this provision is being implemented. Until the
end of such 60 day period the Underwriter and Fund shall continue to accept
and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.5. If a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state
insurance regulators, then the Company will withdraw the Account's investment
in the Fund and terminate this Agreement with respect to such Account. Any
such withdrawal and termination must take place within 60 days after the Fund
gives written notice to the Company that this provision is being implemented.
Until the end of such 60 day period the Underwriter and Fund shall continue
to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund or OpCap Advisors be required to
establish a new funding medium for the Contracts. The Company shall not be
required by Section 7.3 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of
contractowners materially adversely affected by the irreconcilable material
conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully
18
<PAGE>
carry out the duties imposed upon it as delineated in the Mixed and Shared
Funding Exemptive Order, and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, and each of the Fund's or the Underwriter's directors, officers,
employees or agents and each person, if any, who controls or is associated with
the Fund or the Underwriter within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including
19
<PAGE>
reasonable legal and other expenses), to which the indemnified parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Contracts or contained in the
Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration
statement, Fund prospectus, Fund statement of additional
information or sales literature or other 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
20
<PAGE>
information furnished to the Fund by or on behalf of the
Company or persons under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach by the
Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter) or
litigation (including reasonable legal and other expenses) to which the
indemnified parties may become subject under any statute,
21
<PAGE>
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Fund or sales literature or
other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Fund or in sales literature
or other promotional material of the Fund (or any amendment
or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement,
the Contract or Fund prospectus, statement of additional
information, or sales literature or other promotional
material for the Contracts or of the Fund not supplied by
the Underwriter or the Fund or persons under the control of
the Underwriter or the Fund respectively) or wrongful
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
22
<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); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or
the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party entitled to indemnification under this Article
VIII ("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing
23
<PAGE>
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 settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party
24
<PAGE>
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 and shall be in addition to any liability the
parties may otherwise have.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
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
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<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
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of the Fund shares,
which would have a material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
26
<PAGE>
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an 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
27
<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
28
<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.
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<PAGE>
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 and
subject to Section 1.3 of this Agreement, the Company may require the Fund and
the Underwriter to continue to make available additional shares of the Fund for
so long after the termination of this Agreement as the Company desires pursuant
to the terms and conditions of this Agreement as provided in paragraph (b)
below, for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.4 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem
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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
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Pruco Life Insurance Company
Mary Cavanaugh, Esq
751 Broad Street
Newark, NJ 07102
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
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ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance
32
<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
COMPANY:
PRUCO LIFE INSURANCE COMPANY
SEAL By: ______________________________
FUND:
OCC ACCUMULATION TRUST
SEAL By: ______________________________
UNDERWRITER:
OCC DISTRIBUTORS
By: ______________________________
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SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, Pruco Life Insurance Company
and
OCC Distributors
The following separate accounts of Pruco Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
Pruco Life Flexible Premium Variable Annuity Account- established June 16, 1995
[7/1/96]
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SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, Pruco Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of OCC Accumulation Trust:
Managed Portfolio
Small Cap Portfolio
[7/1/96]
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PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 1st day of January 1997 by
and among PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, a New Jersey Corporation
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time (each account referred to as the "Account"), OCC
ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund")
and OCC DISTRIBUTORS, a Delaware general partnership (hereinafter the
"Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
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WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of New Jersey, to set aside and
invest assets attributable to the Contracts; and
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WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund.
For purposes of this Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. "Business
Day" shall mean any day on which
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the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as
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Articles I, III, V, and VII of this Agreement are in effect to govern such
sales. The Fund shall make available upon written request from the Company (i)
a list of all other Participating Insurance Companies and (ii) a copy of the
Participation Agreement executed by any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
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1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. If the Fund provides the Company with
materially incorrect share net asset value information through no fault of the
Company, the Company on behalf of the Account shall be entitled to an adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value. Any material error in the calculation of net asset value per
share, dividend or capital gain information shall be reported to the Company
promptly upon discovery.
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ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. 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
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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 maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
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.
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2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisors, is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
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
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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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request for use with prospective contractowners and applicants. The
Underwriter shall print and distribute, at the Fund's or Underwriter's expense,
as many copies of said prospectus as necessary for distribution to existing
contractowners or participants. If requested by the Company in lieu thereof,
the Fund shall provide such documentation including a final copy of a current
prospectus set in type, or, at the request of the Company, as a diskette, 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,
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prospectuses for other mutual funds in which the Contracts may be invested and
the Fund's new prospectus printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require and
shall bear the costs of distributing them to existing contractowners or
participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance with
instructions received from contractowners or participants;
and
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as
Fund shares of such Portfolio for which instructions have
been received from the Company's contractowners or
participants;
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
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Fund shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least ten 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 ten
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
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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 ten business days prior to its use. No such material shall be
used if the Company reasonably objects in writing to such use within ten
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy 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,
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contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a
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plan pursuant to Rule 12b-1 to finance distribution expenses, then, subject to
obtaining any required exemptive orders or other regulatory approvals, the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required by any
federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
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
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insurance contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth
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therein. As set forth in the Mixed and Shared Funding Exemptive Order, the
Company will report any potential or existing conflicts of which it is aware to
the Fund Board. The Company agrees to assist the Fund Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Fund Board with all information reasonably necessary for the Fund
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Fund Board whenever contractowner voting
instructions are disregarded. The Fund Board shall record in its minutes or
other appropriate records, all reports received by it and all action with regard
to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be 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.
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7.4. If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to such
Account. Any such withdrawal and termination must take place within 60 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 60 day period the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or OpCap Advisors be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
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7.7. The Company shall at least annually submit to the
Fund Board such reports, materials or data as the Fund Board may reasonably
request so that the Fund Board may fully carry out the duties imposed upon it
as delineated in the Mixed and Shared Funding Exemptive Order, and said
reports, materials and data shall be submitted more frequently if deemed
appropriate by the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule
6e-3 (T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive
Order) on terms and conditions materially different from those contained in
the Mixed and Shared Funding Exemptive Order, (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3 (T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless
the Fund, the Underwriter, and each of the Fund's or the Underwriter's
directors, officers, employees or agents and each person, if any, who
controls or is associated with the Fund or the Underwriter within the meaning
of such terms under the federal securities laws (collectively, the
"indemnified parties" for
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purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses),
to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Contracts or contained in
the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading in light of
the circumstances in which they were made; provided that
this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Company by
or on behalf of the Fund for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or sales
literature or other promotional material for the Contracts
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than
statements or representations contained in the Fund
registration statement, Fund prospectus, Fund statement
of additional information or sales literature or other
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
20
<PAGE>
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach by
the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if
such loss, claim, damage, liability or litigation is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
(c) The indemnified parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or
the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of
the Fund, agrees to indemnify and hold harmless the Company and each of its
directors, officers, employees or agents and each person, if any, who
controls or is associated with the Company within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in
21
<PAGE>
settlement with the written consent of the Underwriter) or litigation (including
reasonable legal and other expenses) to which the indemnified parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Fund or sales literature or
other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made;
provided that this agreement to indemnify shall not apply
as to any indemnified party if such statement or omission
or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use
in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature
or other promotional material of the Fund (or any amendment
or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration
statement, the Contract or Fund prospectus, statement of
additional information, or sales literature or other
promotional material for the Contracts or of the Fund not
supplied by the Underwriter or the Fund or persons under
the control of the Underwriter or the Fund respectively)
or wrongful 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
22
<PAGE>
necessary to make the statement or statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance
upon and in conformity with information furnished to the
Company by or on behalf of the Underwriter or the Fund or
persons under the control of the Underwriter or the Fund;
or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements and procedures related thereto specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or
the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if
such loss, claim, damage, liability or litigation is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
(c) The indemnified parties will promptly notify the
Underwriter of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under
this Article VIII ("indemnifying party" for the purpose of this Section 8.3)
shall not be liable under the indemnification provisions of this Article VIII
with respect to any claim made against a party
23
<PAGE>
entitled to indemnification under this Article VIII ("indemnified party" for the
purpose of this Section 8.3) unless such indemnified party shall have notified
the indemnifying party in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such indemnified party (or after such party shall have
received notice of such service on any designated agent), but failure to notify
the indemnifying party of any such claim shall not relieve the indemnifying
party from any liability which it may have to the indemnified party against whom
such action is brought under the indemnification provision of this Article VIII,
except to the extent that the failure to notify results in the failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of failure to give such notice. In case any such action is brought
against the indemnified party, the indemnifying party will be entitled to
participate, at its own expense, in the defense thereof. The indemnifying party
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the indemnifying party to
the indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the 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
24
<PAGE>
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment.
A successor by law of the parties to this Agreement shall
be entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement and shall be in addition to any
liability the parties may otherwise have.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
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.
25
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the
State of New York.
9.2. This Agreement shall be subject to the provisions
of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to the Mixed and
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 180 days advance
written notice to the other parties unless otherwise agreed in a separate
written agreement among the parties; or
(b) at the option of the Company if shares of the
Portfolios delineated in Schedule 2 are not reasonably available to meet the
requirements of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of
formal proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
administration of the Contracts, the operation of the Account, or the
purchase of
26
<PAGE>
the Fund shares, which would have a material adverse effect on the Company's
ability to perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of
formal proceedings against the Fund or the Underwriter by the NASD, the SEC,
or any state securities or insurance department or any other regulatory body,
which would have a material adverse effect on the Fund's or the Underwriter's
ability to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon
receipt of any necessary regulatory approvals and/or the vote of the
contractowners having an interest in the Account (or any subaccount) to
substitute the shares of another investment company for the corresponding
Portfolio shares of the Fund in accordance with the terms of the Contracts
for which those Portfolio shares had been selected to serve as the underlying
investment media. The Company will give 30 days prior written notice to the
Fund of the date of any proposed vote or other action taken to replace the
Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an 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
27
<PAGE>
(h) at the option of the Company if the Fund fails
to meet the diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement,
upon another party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company
determines in its sole judgment exercised in good faith, that either the Fund
or the Underwriter has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the
Fund or Underwriter respectively, shall determine in its sole judgment
exercised in good faith, that the Company has suffered a material adverse
change in its business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations of
the Fund or Underwriter; or
(l) at the option of the Fund in the event any of
the Contracts are not issued or sold in accordance with applicable federal
and/or state law. Termination shall be effective immediately upon such
occurrence without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this
Agreement is based upon the provisions of Article VII, such prior written
notice shall be given in advance of the effective date of termination as
required by such provisions.
28
<PAGE>
(b) In the event that any termination of this
Agreement is based upon the provisions of Sections 10.1(b) - (d) or 10.1(g) -
(i), prompt written notice of the election to terminate this Agreement for
cause shall be furnished by the party terminating the Agreement to the
non-terminating parties, with said termination to be effective upon receipt
of such notice by the non-terminating parties.
(c) In the event that any termination of this
Agreement is based upon the provisions of Sections 10.1(j) or 10.1(k), prior
written notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating this Agreement to the non-terminating
parties. Such prior written notice shall be given by the party terminating
this Agreement to the non-terminating parties at least 30 days before the
effective date of termination.
10.3. It is understood and agreed that the right to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this
Agreement and subject to Section 1.3 of this Agreement, the Company may
require the Fund and the Underwriter to continue to make available additional
shares of the Fund for so long after the termination of this Agreement as the
Company desires pursuant to the terms and conditions of this Agreement as
provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to
29
<PAGE>
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made
available after termination of this Agreement pursuant to this Section 10.4,
the provisions of this Agreement shall remain in effect except for Section
10.1(a) and thereafter the Fund, the Underwriter, or the Company may
terminate the Agreement, as so continued pursuant to this Section 10.4, upon
written notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Fund or Underwriter,
need not be for more than 90 days.
10.5. Except as necessary to implement contractowner
initiated or approved transactions, or as required by state insurance laws or
regulations, the Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account), and the Company shall not prevent contractowners from
allocating payments to a Portfolio that was otherwise available under the
Contracts, until 90 days after the Company shall have notified the Fund or
Underwriter of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand,
evidenced by written receipt or by certified mail, return receipt
requested, to the other party at the address of such party set forth below or
at such other address as such party may from time to time specify in writing
to the other party. All notices shall be deemed given three business days
after the date received or rejected by the addressee.
If to the Fund:
30
<PAGE>
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Pruco Life Insurance Company of New Jersey
Mary Cavanaugh, Esq
751 Broad Street
Newark, NJ 07102
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any claims against the
Fund as neither the Directors, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each
party hereto shall treat as confidential all information reasonably
identified as such in writing by any other party hereto (including without
limitation the names and addresses of the owners of the Contracts) and,
except as contemplated by this Agreement, shall not disclose, disseminate or
utilize such confidential information until such time as it may come into the
public domain without the express prior written consent of the affected party.
31
<PAGE>
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in
two or more counterparts, each of which taken together shall constitute one
and the same instrument.
12.5. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party
hereto without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other
party and all appropriate governmental authorities (including without
limitation the SEC, the NASD and state insurance regulators) and shall permit
each other and such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
12.8. Each party represents that the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein have been duly authorized by all necessary corporate or
trust action, as applicable, by such party and when so executed and delivered
this Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the
schedules to this Agreement from time to time to reflect changes in or
relating to the Contracts, the Accounts or the Portfolios of the Fund.
32
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed in its name and behalf by its duly
authorized representative as of the date and year first written above.
COMPANY:
PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY
SEAL By: ______________________________
FUND:
OCC ACCUMULATION TRUST
SEAL By: ______________________________
UNDERWRITER:
OCC DISTRIBUTORS
By: ______________________________
33
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, Pruco Life Insurance Company of New Jersey
and
OCC Distributors
The following separate accounts of Pruco Life Insurance
Company of New Jersey are permitted in accordance with the provisions of this
Agreement to invest in Portfolios of the Fund shown in Schedule 2:
Pruco Life of New Jersey Flexible Premium Variable Annuity Account- established
May 20, 1996
[7/1/96]
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, Pruco Life Insurance Company of New Jersey
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the
following Portfolios of OCC Accumulation Trust:
Managed Portfolio
Small Cap Portfolio
[7/1/96]
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
PRUDENTIAL INSURANCE COMPANY OF AMERICA
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 1st day of June 30, 1997 by
and among PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey Corporation
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time (each account referred to as the "Account"), OCC
ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund")
and OCC DISTRIBUTORS, a Delaware general partnership (hereinafter the
"Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of New Jersey, to set aside and
invest assets attributable to the Contracts; and
2
<PAGE>
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund.
For purposes of this Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. "Business
Day" shall mean any day on which
3
<PAGE>
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as
4
<PAGE>
Articles I, III, V, and VII of this Agreement are in effect to govern such
sales. The Fund shall make available upon written request from the Company
(i) a list of all other Participating Insurance Companies and (ii) a copy of the
Participation Agreement executed by any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus.
5
<PAGE>
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. If the Fund provides the Company with
materially incorrect share net asset value information through no fault of the
Company, the Company on behalf of the Account shall be entitled to an adjustment
to the number of shares purchased or redeemed to reflect the correct share net
asset value. Any material error in the calculation of net asset value per
share, dividend or capital gain information shall be reported to the Company
promptly upon discovery.
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ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. 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
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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 maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
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.
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2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisors, is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
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
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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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request for use with prospective contractowners and applicants. The
Underwriter shall print and distribute, at the Fund's or Underwriter's expense,
as many copies of said prospectus as necessary for distribution to existing
contractowners or participants. If requested by the Company in lieu thereof,
the Fund shall provide such documentation including a final copy of a current
prospectus set in type, or, at the request of the Company, as a diskette, 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,
10
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prospectuses for other mutual funds in which the Contracts may be invested and
the Fund's new prospectus printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require and
shall bear the costs of distributing them to existing contractowners or
participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
(iii) vote Fund shares held in the Account for which no
timely instructions have been received, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received from the Company's
contractowners or participants;
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
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Fund shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least ten 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 ten
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
12
<PAGE>
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 ten business days prior to its use. No such material shall be
used if the Company reasonably objects in writing to such use within ten
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy 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,
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<PAGE>
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a
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plan pursuant to Rule 12b-1 to finance distribution expenses, then, subject to
obtaining any required exemptive orders or other regulatory approvals, the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required by any
federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
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
15
<PAGE>
insurance contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth
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<PAGE>
therein. As set forth in the Mixed and Shared Funding Exemptive Order, the
Company will report any potential or existing conflicts of which it is aware to
the Fund Board. The Company agrees to assist the Fund Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Fund Board with all information reasonably necessary for the Fund
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Fund Board whenever contractowner voting
instructions are disregarded. The Fund Board shall record in its minutes or
other appropriate records, all reports received by it and all action with regard
to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be 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.
17
<PAGE>
7.4. If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to such
Account. Any such withdrawal and termination must take place within 60 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 60 day period the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or OpCap Advisors be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
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7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if deemed appropriate by the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, and each of the Fund's or the Underwriter's directors, officers,
employees or agents and each person, if any, who controls or is associated with
the Fund or the Underwriter within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for
19
<PAGE>
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Contracts or contained in the
Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration
statement, Fund prospectus, Fund statement of additional
information or sales literature or other 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
20
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therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach by the
Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in
21
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settlement with the written consent of the Underwriter) or litigation (including
reasonable legal and other expenses) to which the indemnified parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Fund or sales literature or
other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Fund or in sales literature
or other promotional material of the Fund (or any amendment
or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement,
the Contract or Fund prospectus, statement of additional
information, or sales literature or other promotional
material for the Contracts or of the Fund not supplied by
the Underwriter or the Fund or persons under the control of
the Underwriter or the Fund respectively) or wrongful
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
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necessary to make the statement or statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance
upon and in conformity with information furnished to the
Company by or on behalf of the Underwriter or the Fund or
persons under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements and procedures related thereto specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or
the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party
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<PAGE>
entitled to indemnification under this Article VIII ("indemnified party" for the
purpose of this Section 8.3) unless such indemnified party shall have notified
the indemnifying party in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such indemnified party (or after such party shall have
received notice of such service on any designated agent), but failure to notify
the indemnifying party of any such claim shall not relieve the indemnifying
party from any liability which it may have to the indemnified party against whom
such action is brought under the indemnification provision of this Article VIII,
except to the extent that the failure to notify results in the failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of failure to give such notice. In case any such action is brought
against the indemnified party, the indemnifying party will be entitled to
participate, at its own expense, in the defense thereof. The indemnifying party
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the indemnifying party to
the indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the 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
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shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement and shall be in addition to any liability the
parties may otherwise have.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party obligated to indemnify pursuant to the terms of this Article VIII
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
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.
25
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ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of
26
<PAGE>
the Fund shares, which would have a material adverse effect on the Company's
ability to perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an 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
27
<PAGE>
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in
its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
(l) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
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<PAGE>
(b) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written
notice of the election to terminate this Agreement for cause shall be furnished
by the party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement and
subject to Section 1.3 of this Agreement, the Company may require the Fund and
the Underwriter to continue to make available additional shares of the Fund for
so long after the termination of this Agreement as the Company desires pursuant
to the terms and conditions of this Agreement as provided in paragraph (b)
below, for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.4 shall not apply to
29
<PAGE>
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Account), and the Company shall not prevent contractowners from allocating
payments to a Portfolio that was otherwise available under the Contracts, until
90 days after the Company shall have notified the Fund or Underwriter of its
intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
30
<PAGE>
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Prudential Insurance Company of America
Peter T. Scott, Esq.
30 Scranton Office Park
Scranton, PA 18507-1789
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
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<PAGE>
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
COMPANY:
PRUDENTIAL INSURANCE COMPANY OF AMERICA
SEAL By: /s/
------------------------------
FUND: Mark R. Fetting
OCC ACCUMULATION TRUST
SEAL By: /s/
------------------------------
UNDERWRITER: Deborah Kaback
OCC DISTRIBUTORS
By: /s/
------------------------------
Thomas E. Duggan
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<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, Prudential Insurance Company of America
and
OCC Distributors
The following separate accounts of Prudential Insurance Company of America
are permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
Prudential Discovery Select Group Variable Contract Account, established
February 11, 1997
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, Prudential Insurance Company of America
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of OCC Accumulation Trust:
Managed Portfolio
Small Cap Portfolio
<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. 4 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 14, 1997, relating to financial statements and financial highlights
of OCC Accumulation Trust - Equity Portfolio, OCC Accumulation Trust - Small
Cap Portfolio, OCC Accumulation Trust - Global Equity Portfolio, OCC
Accumulation Trust - Managed Portfolio, OCC Accumulation Trust - Bond
Portfolio, OCC Accumulation Trust - U.S. Government Income Portfolio and OCC
Accumulation Trust - Money Market Portfolio, each of which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such
Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
July 2, 1997
