<PAGE>
SUPPLEMENT DATED
FEBRUARY 1, 1998
TO THE PROSPECTUS
DATED MAY 1, 1997
OF OCC ACCUMULATION TRUST
1. The Financial Highlights have been updated to include information for the
six month period ended June 30, 1997, as follows:
OCC ACCUMULATION TRUST
FINANCIAL HIGHLIGHTS
The financial highlights for the years ended December 31, 1996 and 1995, and for
the period from September 14, 1994 through December 31, 1994 for the Equity,
Managed and Small Cap Portfolios; for the year ended December 31, 1996 and for
the period from January 3, 1995 through December 31, 1995 for the U.S.
Government Income Portfolio; and for the year ended December 31, 1996 and for
the period from March 1, 1995 through December 31, 1995 for the Global Equity
Portfolio have been audited by Price Waterhouse LLP, independent accountants,
whose unqualified report thereon appears in the Additional Statement (Part B).
This information should be read in conjunction with the financial statements and
related notes thereto included in the Additional Statement. Total return
information for the Portfolios of the Fund provided in the Financial Highlights
does not include charges and deductions which are imposed under the Contracts
and described in the Prospectus for the Variable Accounts. Inclusion of these
charges and deductions would reduce the total return of the Portfolios of the
Fund. Further information about the performance of each Portfolio is available
in the Fund's Annual Report or semi-annual report. Annual reports or
semi-annual reports can be obtained without charge upon written requests to the
insurance companies issuing the Contracts.
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS SEPTEMBER 16,
ENDED YEARS ENDED DECEMBER 31, 1994 (1) TO
JUNE 30, 1996 1995 DECEMBER 31,
1997(7) 1994
------------- -------------------------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $30.07 $25.05 $18.12 $18.57
------------- ------------- ------------- -------------
Income from investment operations: 0.18 0.21 0.31 0.09
Net investment income
Net realized and unrealized gain (loss)
on investments 3.81 5.52 6.71 (0.54)
------------- ------------- ------------- -------------
Total from investment operations 3.99 5.73 7.02 (0.45)
------------- ------------- ------------- -------------
Dividends and distributions to
shareholders: -
Dividends to shareholders from net
investment income (0.28) (0.24) (0.09) -
Distributions to shareholders from net
realized gains (1.00) (0.47) - -
------------- ------------- ------------- -------------
Total dividends and distributions
to shareholders (1.28) (0.71) (0.09) -
------------- ------------- ------------- -------------
Net asset value, end of period $32.78 $30.07 $25.05 $18.12
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return (2) 13.7% 23.4% 38.9% (2.4%)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net assets, end of period $25,292,710 $19,842,998 $9,035,982 $4,281,256
------------- ------------- ------------- -------------
Ratio of net operating expenses to average
net assets (5) 1.00%(3,4) 0.93%(6) 0.72% 0.72%(3)
------------- ------------- ------------- -------------
Ratio of net investment income to average
net assets (5) 1.29%(3,4) 1.29%(6) 1.74% 1.80%(3)
------------- ------------- ------------- -------------
Portfolio turnover rate 10% 36% 31% 6%
------------- ------------- ------------- -------------
Average commission rate $0.0566 $0.0588 - -
------------- ------------- ------------- -------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
<PAGE>
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $21,885,297.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from custodian bank (See note 1G
in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the year
ended December 31, 1996, 1.26% and 1.20%, respectively, for the year ended
December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for the period
September 16, 1994 (commencement of operations) to December 31, 1994.
(7) Unaudited.
- --------------------------------------------------------------------------------
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 1, 1995 (1)
JUNE 30, 1997 (7) DECEMBER 31, TO DECEMBER 31,
1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.23 $11.61 $10.00
----------------- ----------------- -----------------
Income from investment operations
Net investment income 0.07 0.04 0.05
Net realized gain (loss) on investments 1.79 1.70 1.83
----------------- ----------------- -----------------
Total from investment operations 1.86 1.74 1.88
----------------- ----------------- -----------------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment
income (0.01) (0.05) (0.03)
Distributions to shareholders from net realized
gains (0.00) (0.07) (0.24)
----------------- ----------------- -----------------
Total dividends and distributions to (0.01) (0.12) (0.27)
shareholders
----------------- ----------------- -----------------
Net asset value, end of period $15.08 $13.23 $11.61
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total return (2) 14.1% 15.0% 18.9%
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Net assets, end of period $24,048,309 $16,972,488 $2,891,321
----------------- ----------------- -----------------
Ratio of net operating expenses to average net
assets (5,6) 1.22%(3,4) 1.42%(3,4) 1.25%(6)
----------------- ----------------- -----------------
Ratio of net investment income to average net
assets (6) 1.06%(3,4) 0.81%(3) 1.02%(6)
----------------- ----------------- -----------------
Portfolio turnover rate 14% 40% 67%
----------------- ----------------- -----------------
Average commission rate $0.0228 $0.0254 -
----------------- ----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any
<PAGE>
period shorter than one year.
(3) Annualized
(4) Average net assets for the six months ended June 30, 1997 were $19,997,903.
(5) For the fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.24% and 1.03%, annualized, respectively,
for the six months ended June 30, 1997 and 1.83% and 0.22% respectively for the
year ended December 31, 1996, and 3.94.% and (1.67)%, annualized, respectively,
for the period March 1, 1995 (commencement of operations) to December 31, 1995.
(7) Unaudited.
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JANUARY 3, 1995
JUNE 30, 1997 (7) DECEMBER 31, 1996 (1)
TO DECEMBER 31,
1995
-------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.38 $10.62 $10.00
----------------- ----------------- -----------------
Income from investment operations:
Net investment income 0.28 0.55 0.60
Net realized and unrealized gain (loss)
on investments (0.05) (0.24) 0.68
----------------- ----------------- -----------------
Total from investment operations 0.23 0.31 1.28
----------------- ----------------- -----------------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment
income (0.28) (0.55) (0.60)
Distributions to shareholders from net realized
gains - - (0.06)
----------------- ----------------- -----------------
Total dividends and distributions to
shareholders (0.28) (0.55) (0.66)
----------------- ----------------- -----------------
Net asset value, end of period $10.33 $10.38 $10.62
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Total return (2) 2.2% 3.0% 13.1%
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Net assets, end of period $6,647,927 $3,421,998 $1,442,458
----------------- ----------------- -----------------
Ratio of net operating expenses to average net
assets (5,6) 1.01%(3,4) 0.96%(4,5) 0.75%(3)
----------------- ----------------- -----------------
Ratio of net investment income to average net
assets (6) 5.48%(3,4) 5.27%(4) 5.75%(3)
----------------- ----------------- -----------------
Portfolio turnover rate 60% 31% 65%
----------------- ----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3)
<PAGE>
Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $5,038,930.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.53% and 4.96%, annualized, respectively,
for the six months ended June 30, 1997, and 2.34.% and 3.87%, annualized,
respectively, for the year ended December 31, 1996 and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
(7) Unaudited.
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS SEPTEMBER 16,
ENDED 1994 (1)
JUNE 30, 1997 YEARS ENDED DECEMBER 31, TO DECEMBER
(7) 1996 1995 31, 1994
------------- -------------------------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $36.21 $30.14 $20.83 $21.80
------------- ------------- ------------- -------------
Income from investment
operations:
Net investment income 0.18 0.43 0.42 0.14
Net realized and unrealized gain
(loss) on investments 4.73 6.31 9.02 (1.11)
------------- ------------- ------------- -------------
Total from investment operations 4.91 6.74 9.44 (0.97)
------------- ------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends to shareholders from net
investment income (0.40) (0.41) (0.13) -
Distributions to shareholders from net
realized gains (1.22) (0.26) - -
------------- ------------- ------------- -------------
Total dividends and distributions to
shareholders (1.62) (0.67) (0.13) 0.00
------------- ------------- ------------- -------------
Net asset value, end of period $39.50 $36.21 $30.14 $20.83
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return (2) 14.0% 22.8% 45.6% (4.4%)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net assets, end of period $283,405,661 $180,728,094 $99,188,147 $54,943,371
------------- ------------- ------------- -------------
Ratio of net operating expenses to
average net assets (5) 0.89%(3,4) 0.84% 0.66% 0.66%(3)
------------- ------------- ------------- -------------
Ratio of net investment income to
average net assets 1.41%(3,4) 1.66% 1.85% 2.34%(3)
------------- ------------- ------------- -------------
Portfolio turnover rate 7% 27% 22% 8%
------------- ------------- ------------- -------------
Average commission rate $0.0574 $0.0592 - -
------------- ------------- ------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
<PAGE>
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were
$223,985,374.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees. If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the year
ended December 31, 1996, 0.74.% and 1.77%, respectively, for the year ended
December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for the period
September 16, 1994 (commencement of operations) to December 31, 1994.
(7) Unaudited.
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31, SEPTEMBER 16,
ENDED JUNE 30, 1996 1995 1994 (1)
1997 (7) 1994
------------- -------------------------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
------------- ------------- ------------- -------------
Income from investment operations:
Net investment income 0.02 0.04 0.05 0.01
Net realized gain (loss) on investments (0.00) (0.00) 0.00 -
------------- ------------- ------------- -------------
Total from investment 0.02 0.04 0.05 0.01
operations
------------- ------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends to shareholders from net
investment income (0.02) (0.04) (0.05) (0.01)
Distributions to shareholders from net
realized gains - (0.00) - -
------------- ------------- ------------- -------------
Total dividends and
------------- ------------- ------------- -------------
distributions toshareholders (0.02) (0.04) (0.05) (0.01)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return (2) 2.3% 4.5% 5.1% 1.2%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net assets, end of period $5,253,725 $5,279,042 $4,356,084 $3,519,526
------------- ------------- ------------- -------------
Ratio of net operating expenses to
average net assets (5,6) 0.99%(3,4) 1.01% 1.00% 1.00%(3)
------------- ------------- ------------- -------------
Ratio of net investment income to
average net assets (6) 4.50%(3,4) 4.43% 4.94% 4.13%(3)
------------- ------------- ------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3)
<PAGE>
Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $4,777,776.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees. If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.14% and 4.36%, respectively, for the six
months ended June 30, 1997, 1.30.% and 4.13%, respectively, for the year ended
December 31, 1996 and 1.14% and 4.80%, respectively, for the year ended December
31, 1995 and 2.03% and 3.10%, annualized, respectively, for the period September
16, 1994 (commencement of operations) to December 31, 1994.
(7) Unaudited.
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SEPTEMBER 16,
1994
SIX MONTHS YEAR ENDED DECEMBER 31, (1) TO DECEMBER
ENDED JUNE 30, 1996 1995 31,
1997 (7) 1994
------------- -------------------------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.61 $19.91 $17.38 $17.49
------------- ------------- ------------- -------------
Income from investment operations:
Net investment income 0.03 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments 3.14 3.45 2.37 (0.17)
------------- ------------- ------------- -------------
Total from investment operations 3.17 3.59 2.63 (0.11)
------------- ------------- ------------- -------------
Dividends and distributions to shareholders:
Dividends to shareholders from net
investment income (0.13) (0.25) (0.05) -
Distributions to shareholders from net
realized gains (0.92) (0.64) (0.05) -
------------- ------------- ------------- -------------
Total dividends and distributions (1.05) (0.89) (0.10) -
------------- ------------- ------------- -------------
Net asset value, end of period $24.73 $22.61 $19.91 $17.38
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return (2) 14.6% 18.7% 15.2% (.6%)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net assets, end of period $58,948,669 $34,256,671 $16,004,392 $9,210,443
------------- ------------- ------------- -------------
Ratio of net operating expenses to average
net assets (5) 0.99%(3,4) 0.93%(6) 0.74%(6) 0.74%(3,6)
------------- ------------- ------------- -------------
Ratio of net investment income to average
net assets 0.60%(3,4) 1.03%(6) 1.75%(6) 1.22%(3,6)
------------- ------------- ------------- -------------
Portfolio turnover rate 54% 50% 69% 32%
------------- ------------- ------------- -------------
Average commission rate $0.0544 $0.0493 - -
------------- ------------- ------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
<PAGE>
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $43,502,064.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average 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.
(7) Unaudited.
<PAGE>
2. The Manager will reimburse the Fund such that total operating expenses (net
of any expense offsets)of the Portfolios other than the Global Equity
Portfolio do not exceed 1.00% of their respective average daily net assets
pursuant to the Investment Advisory Agreement between the Trust and the
Manager. Previously, this expense limitation was voluntary on the part of
the Manager.
3. The description of the ownership of the Manager and its parent, Oppenheimer
Capital has been revised to read as follows:
On November 4, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with $125 billion in assets under management through various
subsidiaries, and its affiliates acquired control of Oppenheimer Capital and its
subsidiary OpCap Advisors, the Manager of the Fund. A new Advisory Agreement
(on identical terms as the previous Advisory Agreement) between the Fund and
OpCap Advisors became effective November 5, 1997. The new Advisory Agreement
was approved by the shareholders of each Portfolio of the Fund at a Special
Meeting of Shareholders held on October 14, 1997. On November 30, 1997,
Oppenheimer Capital merged with a subsidiary of PIMCO Advisors and, as a result,
Oppenheimer Capital and OpCap Advisors became indirect wholly-owned subsidiaries
of PIMCO Advisors. PIMCO Advisors has two general partners: PIMCO Partners,
G.P. (PIMCO G.P.") a California general partnership, and PIMCO Advisors Holdings
L.P. (formerly Oppenheimer Capital, L.P.), an NYSE-listed Delaware limited
partnership of which PIMCO G.P. is the sole general partner. PIMCO GP
beneficially owns or controls (through its general partner interest in PIMCO
Advisors Holdings, L.P. formerly Oppenheimer Capital, L.P.) greater than 80% of
the units of limited partnership ("Units") of PIMCO Advisors. PIMCO GP has two
general partners. The first of these is Pacific Investment Management Company,
a wholly-owned subsidiary of Pacific Financial Asset Management Company, which
is a direct subsidiary of Pacific Life Insurance Company ("Pacific Life"). The
managing general partner of PIMCO GP is PIMCO Partners L.L.C. ("PPLLC"), a
California limited liability company. 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, Brent R. Harris, John L. Hague, William S. Thompson Jr., William S. Powers,
David H. Edington, Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by a Management Board, which consists of sixteen
members, pursuant to a delegation by its general partners PIMCO GP has the power
to designate up to nine members of the Management Board and the PIMCO
Subpartnership, of which the PIMCO Managers are the Managing Directors, has the
power to designate up to two members. In addition, PIMCO GP, as the controlling
general partner of PIMCO Advisors, has the power to revoke the delegation to the
Management Board and exercise control of PIMCO Advisors. As a result, Pacific
Life and/or the PIMCO Managers may be deemed to control PIMCO Advisors. Pacific
Life and the PIMCO Managers disclaim such control. Because of direct or
indirect power to appoint 25% of the members of the Equity Board, (i) Pacific
Life and (ii) the PIMCO Managers and/or the PIMCO Subpartnership may each be
deemed, under applicable provisions of the Investment Company Act, to control
PIMCO Advisors. Pacific Life, the PIMCO Subpartnership and the PIMCO Managers
disclaim such
<PAGE>
control. The Additional Statement contains more information about the Advisory
Agreement, including a more complete description of the management fee and
expense arrangements, exculpation provisions and portfolio transactions for the
Fund.
4. The performance information in the section "Calculation of Performance" has
been updated for periods ended June 30, 1997 as follows:
YIELD FOR 7-DAY PERIOD ENDED JUNE 30, 1997 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.72 % 4.83 %
YIELD FOR 30-DAY PERIOD ENDED JUNE 30, 1997 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.66 %
(1) Reflects waiver of a portion of the advisory fees by the Manager. Had the
waiver not been in effect during the period, the yield would have been 5.09 %
for the U.S. Government Income Portfolio.
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MID CAP, MANAGED, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS
OF OCC ACCUMULATION TRUST(1,2)
<TABLE>
<CAPTION>
FOR THE ONE YEAR FOR THE FIVE YEAR FOR THE PERIOD
PERIOD ENDED PERIOD ENDED FROM INCEPTION TO
PORTFOLIO JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997*
- --------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
Equity 26.63% 19.88% 17.21%
Mid-Cap N/A N/A N/A
Managed 28.54% 20.99% 20.63%
Small Cap 25.46% 15.96% 15.56%
U.S. Government Income 5.53% N/A 7.27%
Global Equity 21.78% N/A 20.93%
</TABLE>
<PAGE>
*Inception date of the Global Equity Portfolio is March 1, 1995 and the
inception date of the U.S. Government Income Portfolio is January 3, 1995. The
Equity, Managed and Small Cap Portfolios commenced operations as part of the
Fund on September 16, 1994. The Old Trust commenced operations on August 1,
1988.
(1) On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund commenced
operations. The total net assets for each of the Equity, Small Cap and Managed
Portfolios immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274 and $51,345,102
respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2) Reflects waivers of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager. Without
such waivers and reimbursements, the average annual total return during the
periods would have been lower.
In addition, reference in advertisements may be made to various indices,
including, without limitation, the S&P 500 Stock Index, the S&P Mid Cap Index,
the Wilshire 750 Mid Cap Index, the Russell Mid Cap Index, the Russell 2000, the
Lehman Brothers Corporate/Government Index, the Lehman Brothers US Government
Bond Index and the Morgan Stanley International (MSCI) All Country World 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.
5. The following disclosure has been added regarding year 200 issues:
YEAR 2000 ISSUES. The management services provided to the Fund by the
Manager, and the services provided by the Transfer Agent to shareholders, depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other incorrect date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Manager and Transfer Agent
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time.
<PAGE>
OCC ACCUMULATION TRUST
One World Financial Center, New York, New York 10281
OCC ACCUMULATION TRUST (formerly known as Quest for Value Accumulation Trust,
the "Fund") is a registered open-end diversified management investment company
offering several investment alternatives. It permits an investor the
flexibility of choosing among different investment objectives, through the
following seven Portfolios (the "Portfolios"), each of which is a separate
series of shares of beneficial interest of the Fund ("Shares"). The investment
objective of each Portfolio is as follows:
EQUITY PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities selected on the basis of a value
oriented approach to investing.
MID CAP PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities.
SMALL CAP PORTFOLIO: Capital appreciation through investment in a diversified
portfolio of equity securities of companies with market capitalizations of under
$1 billion.
GLOBAL EQUITY PORTFOLIO: Long term capital appreciation through a global
investment strategy primarily involving equity securities.
MANAGED PORTFOLIO: Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on management's assessments of relative
investment values.
U.S. GOVERNMENT INCOME PORTFOLIO: High current income together with the
protection of capital through investment of securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities.
MONEY MARKET PORTFOLIO: Maximum current income consistent with stability of
principal and liquidity through investment in a portfolio of high quality money
market instruments. ALTHOUGH THE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN ITS
SHARE PRICE AT $1.00, AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NOT
GUARANTEED OR INSURED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL MAINTAIN A CONSTANT PRICE OF $1.00 PER SHARE.
The Fund is an investment vehicle for variable annuity and variable life
insurance contracts of various life insurance companies, and qualified pension
and retirement plans ("Qualified Plans"). Shares of the Fund are currently sold
to variable accounts of various life insurance companies for the purpose of
funding variable annuity and variable life insurance contracts (the
"Contracts"). These variable accounts (the "Variable Accounts") invest in
Shares of the Fund in accordance with allocation instructions received from
owners (the "Contractowners") of the Contracts. Allocation rights are further
described in the accompanying prospectus for the Variable Accounts. The
Variable Accounts will redeem Shares to the extent necessary to provide benefits
under the Contracts. Certain Portfolios may not be available for investment
with respect to certain Contracts offered by certain life insurance companies.
Please check with your insurance company for available Portfolios.
It is possible, although not presently anticipated, that a material
conflict could arise between and among the various variable accounts which
invest in Shares of the Fund and the Qualified Plans, which may, in the future
invest in Shares of the Fund. Such conflict could cause the liquidation of
assets of one or more of the Fund Portfolios to raise cash at times not
otherwise deemed advantageous by the Fund Manager. See "Management of the
Fund," page 27.
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 February 1, 1998,
(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 February 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . 17
Equity Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mid Cap Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 17
Small Cap Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 18
Global Equity Portfolio . . . . . . . . . . . . . . . . . . . . . . 19
U.S. Government Income Portfolio. . . . . . . . . . . . . . . . . . 19
Money Market Portfolio. . . . . . . . . . . . . . . . . . . . . . . 19
Managed Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 20
Additional Information on Investment Objectives and Policies . . . . . . 20
Investment Techniques. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 26
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . 27
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . 29
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 29
State Law Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 30
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . 30
Calculation of Performance . . . . . . . . . . . . . . . . . . . . . . . 31
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . 32
2
<PAGE>
PROSPECTUS SUMMARY
THE FUND The Fund is a Massachusetts business trust which
issues its shares in series as separate classes of
shares of beneficial interest. There are
currently seven series, each of which is
designated as a "Portfolio". Together, the seven
Portfolios are designed to enable investors to
choose a number of investment alternatives to
achieve their financial goals and to shift assets
conveniently among Portfolios when and if their
investment aims or perception of the marketplace
change.
The Fund commenced operations on September 16,
1994 when an investment company then called Quest
for Value Accumulation Trust, with portfolios
corresponding to three of the current seven
portfolios of the Fund, was effectively divided
into two investment funds, the original investment
company, whose name was changed, and the Fund.
INVESTMENT OBJECTIVES
AND RESTRICTIONS The investment objective of each of the Portfolios
is set forth on the cover page of this Prospectus.
These objectives are described in more detail
under the heading "Investment Objectives and
Policies." Although each Portfolio will be
actively managed by experienced professionals,
there can be no assurance that the objectives will
be achieved.
The value of the portfolio securities of each
Portfolio and therefore the Portfolio's net asset
value per share (other than the Money Market
Portfolio) are expected to increase or decrease
because of varying factors. There are generally
two types of risk associated with an investment in
one or more of the Portfolios; market (or interest
rate) risk and financial (or credit) risk. Market
risk for equities is the risk associated with
movement of the stock market in general.
Market risk for fixed income securities is the
risk that interest rates will change, thereby
affecting their value. Generally, the value of
fixed income securities declines as interest rates
rise, and conversely, their value rises as
interest rates decline. The second type of risk,
financial or credit risk, is associated with the
financial condition and profitability of an
individual equity or fixed income issuer. The
financial risk in owning equities is related to
earnings stability and overall financial soundness
of individual issuers and of issuers collectively
which are part of a particular industry. For
fixed income securities, credit risk relates to
the financial ability of an issuer to make
periodic interest payments and ultimately repay
the principal at maturity. (See "Additional
Information on Investment Objectives and Policies"
for risk aspects of the individual Portfolios).
INVESTMENT MANAGER OpCap Advisors (the "Manager"), the investment
manager of each of the Portfolios, is investment
manager and sub-adviser to several other
registered investment companies with assets under
management of approximately $15.9 billion at
December 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 $61.4 billion at December 31, 1997.
MANAGEMENT FEE The Manager receives a monthly fee from each
Portfolio at varying annual percentage rates of
average daily net assets, as follows: .80 percent
on the first $400 million, .75 percent on the next
$400 million and .70 percent thereafter of the
average daily net assets for the Equity, Mid Cap,
Small Cap, Managed and
3
<PAGE>
Global Equity Portfolios; .60 percent of average
daily net assets for the U.S. Government Income
Portfolio; and .40 percent of the average daily
net assets for the Money Market Portfolio (see
page 27).
PURCHASES AND
REDEMPTION OF SHARES Currently, shares of the Fund are sold at their
net asset value per share, without sales charge,
for allocation to the Variable Accounts as the
underlying investment for the Contracts.
Accordingly, the interest of the Contractowner
with respect to the Fund is subject to the terms
of the Contract as described in the accompanying
Prospectus for the Variable Accounts, which should
be reviewed carefully by a person considering the
purchase of a Contract. That Prospectus describes
the relationship between increases or decreases in
the net asset value of Fund shares and any
distributions on such shares, and the benefits
provided under a Contract. The rights of the
Variable Accounts as shareholders of the Fund
should be distinguished from the rights of a
Contractowner which are described in the Contract.
As long as shares of the Fund are sold for
allocation to the Variable Accounts, the terms
"shareholder" or "shareholders" in this Prospectus
shall refer to the Variable Accounts. Shares are
redeemed at their respective net asset values as
next determined after receipt of proper notice of
redemption.
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus, the Additional Statement, and the accompanying
Prospectus for the Variable Accounts.
4
<PAGE>
OCC ACCUMULATION TRUST
FINANCIAL HIGHLIGHTS
The financial highlights for the years ended December 31, 1996 and 1995, and for
the period from September 14, 1994 through December 31, 1994 for the Equity,
Managed and Small Cap Portfolios; for the year ended December 31, 1996 and for
the period from January 3, 1995 through December 31, 1995 for the U.S.
Government Income Portfolio; and for the year ended December 31, 1996 and for
the period from March 1, 1995 through December 31, 1995 for the Global Equity
Portfolio have been audited by Price Waterhouse LLP, independent accountants,
whose unqualified report thereon appears in the Additional Statement (Part B).
This information should be read in conjunction with the financial statements and
related notes thereto included in the Additional Statement. Total return
information for the Portfolios of the Fund provided in the Financial Highlights
does not include charges and deductions which are imposed under the Contracts
and described in the Prospectus for the Variable Accounts. Inclusion of these
charges and deductions would reduce the total return of the Portfolios of the
Fund. Further information about the performance of each Portfolio is available
in the Fund's Annual Report or semi-annual report. Annual reports or
semi-annual reports can be obtained without charge upon written requests to the
insurance companies issuing the Contracts.
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS SEPTEMBER 16,
ENDED YEAR ENDED DECEMBER 31, 1994 (1) TO
JUNE 30, 1997(7) 1996 1995 DECEMBER 31, 1994
--------------- ---------------------------------- -----------------
<S> <C> <C> <C> <C> 0
Net asset value, beginning of period $ 30.07 $ 25.05 $ 18.12 $ 18.57
--------------- -------------- --------------- ----------------
Income from investment operations: 0.18 0.21 0.31 0.09
Net investment income
Net realized and unrealized gain (loss)
on investments 3.81 5.52 6.71 (0.54)
--------------- -------------- --------------- ----------------
Total from investment operations 3.99 5.73 7.02 (0.45)
--------------- -------------- --------------- ----------------
Dividends and distributions to
shareholders: -
Dividends to shareholders from net
investment income (0.28) (0.24) (0.09) -
Distributions to shareholders from net
realized gains (1.00) (0.47) - -
--------------- -------------- --------------- ----------------
Total dividends and distributions
to shareholders (1.28) (0.71) (0.09) -
--------------- -------------- --------------- ----------------
5
<PAGE>
Net asset value, end of period $32.78 $30.07 $25.05 $18.12
--------------- -------------- --------------- ----------------
--------------- -------------- --------------- ----------------
Total return (2) 13.7% 23.4% 38.9% (2.4%)
--------------- -------------- --------------- ----------------
--------------- -------------- --------------- ----------------
Net assets, end of period $ 25,292,710 $ 19,842,998 $ 9,035,982 $ 4,281,256
--------------- -------------- --------------- ----------------
Ratio of net operating expenses to
average net assets (5) 1.00%(3,4) 0.93%(6) 0.72% 0.72%(3)
--------------- -------------- --------------- ----------------
Ratio of net investment income to
average net assets (5) 1.29%(3,4) 1.29%(6) 1.74% 1.80%(3)
--------------- -------------- --------------- ----------------
Portfolio turnover rate 10% 36% 31% 6%
--------------- -------------- --------------- ----------------
Average commission rate $ 0.0566 $ 0.0588 - -
--------------- -------------- --------------- ----------------
</TABLE>
- ----------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $21,885,297.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from custodian bank (See note 1G
in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the year
ended December 31, 1996, 1.26% and 1.20%, respectively, for the year ended
December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for the period
September 16, 1994 (commencement of operations) to December 31, 1994.
(7) Unaudited.
6
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 1, 1995 (1)
JUNE 30, 1997 (7) DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $13.23 $11.61 $10.00
---------------- ----------------- ---------------
Income from investment operations
Net investment income 0.07 0.04 0.05
Net realized gain (loss) on investments 1.79 1.70 1.83
---------------- ----------------- ---------------
Total from investment operations 1.86 1.74 1.88
---------------- ----------------- ---------------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income (0.01) (0.05) (0.03)
Distributions to shareholders from net realized gains (0.00) (0.07) (0.24)
---------------- ----------------- ---------------
Total dividends and distributions to shareholders (0.01) (0.12) (0.27)
---------------- ----------------- ---------------
Net asset value, end of period $15.08 $13.23 $11.61
---------------- ----------------- ---------------
---------------- ----------------- ---------------
Total return (2) 14.1% 15.0% 18.9%
---------------- ----------------- ---------------
---------------- ----------------- ---------------
Net assets, end of period $24,048,309 $16,972,488 $2,891,321
---------------- ----------------- ---------------
Ratio of net operating expenses to average net assets 1.22%(3,4) 1.42%(3,4) 1.25%(6)
(5,6) ---------------- ----------------- ---------------
Ratio of net investment income to average net assets 1.06%(3,4) 0.81%(3) 1.02%(6)
(6) ---------------- ----------------- ---------------
Portfolio turnover rate 14% 40% 67%
---------------- ----------------- ---------------
Average commission rate $0.0228 $0.0254 -
---------------- ----------------- ---------------
</TABLE>
- ----------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the six months ended June 30, 1997 were $19,997,903.
7
<PAGE>
(5) For the fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.24% and 1.03%, annualized, respectively,
for the six months ended June 30, 1997 and 1.83% and 0.22% respectively for the
year ended December 31, 1996, and 3.94.% and (1.67)%, annualized, respectively,
for the period March 1, 1995 (commencement of operations) to December 31, 1995.
(7) Unaudited.
8
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEAR ENDED JANUARY 3, 1995 (1)
30, 1997 (7) DECEMBER 31, 1996 TO DECEMBER 31, 1995
--------------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.38 $10.62 $10.00
--------------- --------------- --------------
Income from investment operations:
Net investment income 0.28 0.55 0.60
Net realized and unrealized gain (loss)
on investments (0.05) (0.24) 0.68
--------------- --------------- --------------
Total from investment operations 0.23 0.31 1.28
--------------- --------------- --------------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income (0.28) (0.55) (0.60)
Distributions to shareholders from net realized gains - - (0.06)
--------------- --------------- --------------
Total dividends and distributions to shareholders (0.28) (0.55) (0.66)
--------------- --------------- --------------
Net asset value, end of period $10.33 $10.38 $10.62
--------------- --------------- --------------
--------------- --------------- --------------
Total return (2) 2.2% 3.0% 13.1%
--------------- --------------- --------------
--------------- --------------- --------------
Net assets, end of period $6,647,927 $3,421,998 $1,442,458
--------------- --------------- --------------
Ratio of net operating expenses to average net assets 1.01%(3,4) 0.96%(4,5) 0.75%(3)
(5,6) --------------- --------------- --------------
Ratio of net investment income to average net assets 5.48%(3,4) 5.27%(4) 5.75%(3)
(6) --------------- --------------- --------------
Portfolio turnover rate 60% 31% 65%
--------------- --------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized ) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $5,038,930.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
9
<PAGE>
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.53% and 4.96%, annualized, respectively,
for the six months ended June 30, 1997, and 2.34.% and 3.87%, annualized,
respectively, for the year ended December 31, 1996 and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
(7) Unaudited.
10
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 16, 1994 (1)
JUNE 30, 1997 (7) YEARS ENDED DECEMBER 31, TO DECEMBER 31,
1996 1995 1994
----------------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $36.21 $30.14 $20.83 $21.80
------------ ------------ ----------- -----------
Income from investment operations:
Net investment income 0.18 0.43 0.42 0.14
Net realized and unrealized gain
(loss) on investments 4.73 6.31 9.02 (1.11)
------------ ------------ ----------- -----------
Total from investment operations 4.91 6.74 9.44 (0.97)
------------ ------------ ----------- -----------
Dividends and distributions to shareholders:
Dividends to shareholders from net
investment income (0.40) (0.41) (0.13) -
Distributions to shareholders from net
realized gains (1.22) (0.26) - -
------------ ------------ ----------- -----------
Total dividends and distributions
to shareholders (1.62) (0.67) (0.13) 0.00
------------ ------------ ----------- -----------
Net asset value, end of period $39.50 $36.21 $30.14 $20.83
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Total return (2) 14.0% 22.8% 45.6% (4.4%)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net assets, end of period $283,405,661 $180,728,094 $99,188,147 $54,943,371
------------ ------------ ----------- -----------
Ratio of net operating expenses to
average net assets (5) 0.89%(3,4) 0.84% 0.66% 0.66%(3)
------------ ------------ ----------- -----------
Ratio of net investment income to
average net assets 1.41%(3,4) 1.66% 1.85% 2.34%(3)
------------ ------------ ----------- -----------
Portfolio turnover rate 7% 27% 22% 8%
------------ ------------ ----------- -----------
Average commission rate $0.0574 $0.0592 - -
------------ ------------ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
11
<PAGE>
(4) Average net assets for the six months ended June 30, 1997 were
$223,985,374.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees. If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the
year ended December 31, 1996, 0.74.% and 1.77%, respectively, for the year
ended December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
(7) Unaudited.
12
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 16, 1994 (1)
JUNE 30, 1997 (7) YEARS ENDED DECEMBER 31, TO DECEMBER 31,
1996 1995 1994
----------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
------------ ------------ ----------- -----------
Income from investment operations:
Net investment income 0.02 0.04 0.05 0.01
Net realized gain (loss) on investments (0.00) (0.00) 0.00 -
------------ ------------ ----------- -----------
Total from investment operations 0.02 0.04 0.05 0.01
------------ ------------ ----------- -----------
Dividends and distributions to shareholders:
Dividends to shareholders from net
investment income (0.02) (0.04) (0.05) (0.01)
Distributions to shareholders from net
realized gains - (0.00) - -
------------ ------------ ----------- -----------
Total dividends and distributions
to shareholders (0.02) (0.04) (0.05) (0.01)
------------ ------------ ----------- -----------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Total return (2) 2.3% 4.5% 5.1% 1.2%
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net assets, end of period $5,253,725 $5,279,042 $4,356,084 $3,519,526
------------ ------------ ----------- -----------
Ratio of net operating expenses to
average net assets (5,6) 0.99%(3,4) 1.01% 1.00% 1.00%(3)
------------ ------------ ----------- -----------
Ratio of net investment income to
average net assets (6) 4.50%(3,4) 4.43% 4.94% 4.13%(3)
------------ ------------ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $4,777,776.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees. If such waivers had not been in effect, the ratios of net operating
13
<PAGE>
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.14% and 4.36%, respectively, for the
six months ended June 30, 1997, 1.30.% and 4.13%, respectively, for the
year ended December 31, 1996 and 1.14% and 4.80%, respectively, for the
year ended December 31, 1995 and 2.03% and 3.10%, annualized, respectively,
for the period September 16, 1994 (commencement of operations) to December
31, 1994.
(7) Unaudited.
14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SEPTEMBER 16, 1994
YEARS ENDED DECEMBER 31, (1) TO DECEMBER 31,
SIX MONTHS ENDED 1996 1995 1994
JUNE 30, 1997 (7) ----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $22.61 $19.91 $17.38 $17.49
------------ ------------ ----------- -----------
Income from investment operations:
Net investment income 0.03 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments 3.14 3.45 2.37 (0.17)
------------ ------------ ----------- -----------
Total from investment operations 3.17 3.59 2.63 (0.11)
------------ ------------ ----------- -----------
Dividends and distributions to shareholders:
Dividends to shareholders from net
investment income (0.13) (0.25) (0.05) -
Distributions to shareholders from net
realized gains (0.92) (0.64) (0.05) -
------------ ------------ ----------- -----------
Total dividends and distributions (1.05) (0.89) (0.10) -
------------ ------------ ----------- -----------
Net asset value, end of period $24.73 $22.61 $19.91 $17.38
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Total return (2) 14.6% 18.7% 15.2% (.6%)
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net assets, end of period $58,948,669 $34,256,671 $16,004,392 $9,210,443
------------ ------------ ----------- -----------
Ratio of net operating expenses to average
net assets (5) 0.99%(3,4) 0.93%(6) 0.74%(6) 0.74%(3,6)
------------ ------------ ----------- -----------
Ratio of net investment income to average
net assets 0.60%(3,4) 1.03%(6) 1.75%(6) 1.22%(3,6)
------------ ------------ ----------- -----------
Portfolio turnover rate 54% 50% 69% 32%
------------ ------------ ----------- -----------
Average commission rate $0.0544 $0.0493 - -
------------ ------------ ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
15
<PAGE>
(4) Average net assets for the six months ended June 30, 1997 were $43,502,064.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank
(See note 1G in Notes to Financial Statements).
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses. If
such waivers and assumptions had not been in effect, the ratios of net
operating expenses to average 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.
(7) Unaudited.
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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,
Chairman, Chief Executive Officer and Chief Investment Officer of Oppenheimer
Capital, the parent of the Manager. Mr. Long has been with Oppenheimer Capital
since 1982. Fixed income investment policy is overseen by Robert J. Bluestone,
Managing Director and Director of Fixed Income Management of Oppenheimer
Capital. Mr. Bluestone has been with the firm since 1986.
EQUITY PORTFOLIO
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) of
companies that are believed by the Manager to be undervalued in the marketplace
in relation to factors such as the companies' assets or earnings. It is the
Manager's intention to invest in securities of companies which in the Manager's
opinion possess one or more of the following characteristics: undervalued
assets, valuable consumer or commercial franchises, securities valuation below
peer companies, substantial and growing cash flow and/or a favorable price to
book value relationship. Investment policies aimed at achieving the Portfolio's
objective are set in a flexible framework of securities selection which
primarily includes equity securities, such as common stocks, preferred stocks,
convertible securities, rights and warrants in proportions which vary from time
to time. Under normal circumstances at least 65 percent of the Portfolio's
assets will be invested in equity securities. The Portfolio will invest
primarily in stocks listed on the New York Stock Exchange. In addition, it may
also purchase securities listed on other domestic securities exchanges,
securities traded in the domestic over-the-counter market and foreign securities
provided that they are listed on a domestic or foreign securities exchange or
represented by American depository receipts listed on a domestic securities
exchange or traded in domestic or foreign over-the-counter markets. Investments
of the Equity Portfolio are managed by Eileen Rominger, Managing Director of
Oppenheimer Capital. Ms. Rominger has been an analyst and portfolio manager at
Oppenheimer Capital since 1981.
MID CAP PORTFOLIO
The investment objective of the Mid Cap Portfolio is long-term capital
appreciation. The portfolio seeks to achieve its objective through investments
primarily in equity securities of companies with market capitalizations between
$500 million and $5 billion which are believed to be undervalued in the
marketplace in relation to factors such as the company's discretionary cash flow
generation, earnings or assets. It is the Manager's intention to invest in
securities of companies which in the Manager's opinion possess one or more of
the following characteristics: undervalued assets, valuable consumer or
commercial franchises, strong shareholder-value oriented management, and/or
substantial and growing discretionary cash flow, and a favorable
price-to-intrinsic value relationship. Mid-cap companies may, in some cases,
enjoy some distinct business advantages by virtue of their size and yet be
undervalued in the market, in the following respects: (i) such companies are
generally studied by fewer stock analysts than large companies, resulting in
periodic valuation discrepancies; (ii) institutional investors, which currently
represent a majority of trading volume in shares of publicly-traded companies,
often must invest large pools of money and are reluctant to own the resultant
disproportionately large percentages of a
17
<PAGE>
mid-cap company's securities; (iii) such companies may have available a broader
array of opportunities for value creation due to their relatively smaller size.
These opportunities could include: regional or product line expansion,
consolidating acquisitions of a related business, joint ventures, divestiture of
business units, or sale of the entire company; and (iv) such companies may
retain qualities that have been lost or diminished at their larger counterparts
including focus, a sharp sense of management accountability and speedy response
to competitive developments. Mid-cap companies also may enjoy advantages over
smaller companies, such as the stability of a longer operating record, the
critical mass to exploit international opportunities and a more professional
management. Investment policies aimed to achieve the Portfolio's objective are
set in a flexible framework of securities selection which primarily includes
equity and equity derivative securities, such as common stocks, preferred stock,
convertible securities, rights, warrants, options and puts in proportions which
vary from time to time. Under normal circumstances at least 65 percent of the
Portfolio's assets will be invested in equity securities. The majority of
securities purchased by the Portfolio will be traded on the New York Stock
Exchange, the American Stock Exchange or in the over-the-counter market. In
addition, the Portfolio may also purchase foreign securities provided that they
are listed on a domestic or foreign securities exchange or traded in domestic or
foreign over-the-counter markets. The Portfolio may also purchase securities in
initial public offerings, or shortly after such offerings have been completed,
when the Manager believes those securities have greater-than-average market
appreciation potential. Investments in the Mid Cap Portfolio are managed by
Eileen Rominger - Managing Director of Oppenheimer Capital, Alan Gutmann -
Senior Vice President of Oppenheimer Capital, and Louis Goldstein - Vice
President of Oppenheimer Capital. Ms. Rominger has been an analyst and
portfolio manager at Oppenheimer Capital since 1981. Mr. Gutmann joined
Oppenheimer Capital in 1991 after working in the merger and acquisition
department of Salomon Brothers, Inc. Mr. Goldstein joined Oppenheimer Capital
in 1991 and formerly had been an analyst for David J. Greene & Co.
SMALL CAP PORTFOLIO
The investment objective of the Small Cap Portfolio is to seek capital
appreciation through investments in a diversified portfolio consisting primarily
of equity securities of companies with market capitalizations of under $1
billion. Smaller-capitalization companies are often under-priced for the
following reasons: (i) institutional investors, which currently represent a
majority of the trading volume in the shares of publicly-traded companies, are
often less interested in such companies because in order to acquire an equity
position that is large enough to be meaningful to an institutional investor,
such an investor may be required to buy a large percentage of the company's
outstanding equity securities and (ii) such companies may not be regularly
researched by stock analysts, thereby resulting in greater discrepancies in
valuation. The Portfolio may also purchase securities in initial public
offerings, or shortly after such offerings have been completed, when the Manager
believes that such securities have greater-than-average market appreciation
potential. Under normal circumstances at least 65 percent of the Portfolio's
assets will be invested in equity securities. The majority of securities
purchased by the Portfolio will be traded on the New York Stock Exchange (the
"NYSE"), the American Stock Exchange or in the over-the-counter market, and will
also include options, warrants, bonds, notes and debentures which are
convertible into or exchangeable for, or which grant a right to purchase or
sell, such securities. In addition, the Portfolio may also purchase foreign
securities provided that they are listed on a domestic or foreign securities
exchange or are represented by American depository receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
The Small Cap Portfolio is managed by Timothy McCormack, Timothy Curro and
Gavin Albert, each of whom is a Vice President of Oppenheimer Capital. ^ Mr.
McCormack became a portfolio manager of the Portfolio in May 1996. He joined
Oppenheimer Capital in 1994. From March 1993 to July 1994 Mr. McCormack was a
security analyst at U.S. Trust Company and prior to that he was a securities
analyst with Gabelli and Company. He has a Masters of Business Administration
degree from the Wharton School. Timothy Curro and Gavin Albert became portfolio
managers of the Portfolio on January 1, 1997. Mr. Curro has been a Vice
President of Oppenheimer Capital since November 1996. Prior thereto, he was a
general partner of Value Holdings, L.P., an investment partnership, from May
1995 to November 1996, a Vice President in the equity research department at UBS
Securities Inc. from June 1994 through May 1995 and from January 1991 through
February 1993 and was a partner with Omega Advisors, Inc. from March 1993 to
March 1994. He has a Masters of Business Administration degree from the
University of California, Berkeley. Mr. Albert, Vice President of Oppenheimer
Capital since December 1996, joined the firm in September 1994 as a research
analyst. Prior thereto he was a management consultant for EDS Energy Management
in 1994, attended the Vanderbilt
18
<PAGE>
University Business School from September 1992 to May 1994 (with a Masters of
Business Administration degree in finance and management) and was a financial
analyst in the Corporate Finance department of Texaco, Inc. from 1990 to 1992.
GLOBAL EQUITY PORTFOLIO
The investment objective of the Global Equity Portfolio is to seek long
term capital appreciation through pursuit of a global investment strategy
primarily involving equity securities. The Portfolio may invest anywhere in the
world with no requirement that any specific percentage of its assets be
committed to any given country. Under normal circumstances, at least 65 percent
of the Portfolio's total assets will be invested in equity securities in at
least three different countries, one of which may be the United States.
Opportunities for capital appreciation may also be presented by debt securities.
The Portfolio may invest up to 35 percent of its total assets in debt
obligations with remaining maturities of one year or more of U.S. or foreign
corporate, governmental or bank issuers. It is the present intention of the
Portfolio, although not a fundamental policy, not to invest more than 5 percent
of its total assets in debt securities rated below investment-grade. Although
there is no minimum rating for this category of debt investments of the
Portfolio, the Portfolio does not intend to invest in bonds which are in
default. Domestic investments of this Portfolio are managed by Richard J.
Glasebrook II, Managing Director of Oppenheimer Capital. He joined Oppenheimer
Capital in 1991. The Portfolio's investments in foreign securities are managed
by Pierre Daviron, President and Chief Investment Officer of Oppenheimer Capital
International, a division of Oppenheimer Capital created in 1993. Previously,
he was Chairman and Chief Executive Officer at Indosuez Gartmore Asset
Management, a division of Banque Indosuez, Paris, France. Prior thereto he was
a Managing Director in Mergers and Acquisitions at J.P. Morgan.
U.S. GOVERNMENT INCOME PORTFOLIO
The investment objective of the U.S. Government Income Portfolio is to seek
a high level of current income together with protection of capital by investing
exclusively in debt obligations, including mortgage-backed securities, issued or
guaranteed by the United States government, its agencies or instrumentalities
("U.S. government securities"). Among the securities the Portfolio may purchase
are mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan National Mortgage Corporation
("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae").
The Portfolio normally intends to maintain at least 65 percent of its assets in
U.S. Government Securities. The average maturity of the Portfolio's investments
will vary based on market conditions. It is estimated that the average dollar
weighted maturity of the Portfolio will be between three and ten years. The
U.S. Government Income Portfolio is managed by Vikki Hanges, Vice President of
Oppenheimer Capital. She joined Oppenheimer Capital in 1982.
MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to seek maximum
current income consistent with stability of principal and liquidity. The
Portfolio may invest only in money market instruments and corporate obligations
denominated in U.S. dollars which have a maturity at the time of investment of
one year or less and repurchase and reverse repurchase agreements which extend
for no more than seven days. The Portfolio does not presently intend to enter
into reverse repurchase agreements. Money market instruments include U.S.
government securities, short-term bank obligations such as certificates of
deposit, bankers' acceptances and letters of credit and corporate commercial
paper. All investments will be of high quality as determined by one or more
nationally-recognized statistical rating organizations or, in the case of
non-rated securities, of comparable quality in accordance with standards and
procedures established by the Board of Trustees. It is expected that all or
almost all of the Portfolio's income will come from interest and that little or
no income will be the result of capital gains. (See "Additional Information on
Investment Objectives and Policies" for a more complete description of the
specific securities.)
19
<PAGE>
MANAGED PORTFOLIO
The investment objective of the Managed Portfolio is to achieve growth of
capital over time through investment in a portfolio consisting of common stocks,
bonds and cash equivalents, the percentages of which will vary based on the
Manager's assessments of the relative outlook for such investments. In seeking
to achieve its investment objective, the types of equity securities in which the
Portfolio may invest are likely to be the same as those in which the Equity
Portfolio invests, although securities of the type in which the Small Cap
Portfolio invests may, to a lesser extent, be included. Debt securities are
expected to be predominantly investment grade intermediate to long term U.S.
Government and corporate debt, although the Portfolio will also invest in high
quality short term money market and cash equivalent securities and may invest
almost all of its assets in such securities when the Manager deems it advisable
in order to preserve capital. In addition, the Portfolio may also purchase
foreign securities provided that they are listed on a domestic or foreign
securities exchange or are represented by American depository receipts listed on
a domestic securities exchange or traded in domestic or foreign over-the-counter
markets.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Manager's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a maximum percentage of the Portfolio's assets that may,
at any given time, be invested in any of the types of investments identified
above. Consequently, while the Portfolio will earn income to the extent it is
invested in bonds or cash equivalents, the Portfolio does not have any specific
income objective. Although there is neither a minimum nor maximum percentage of
the Portfolio's assets that may, at any given time, be invested in any of the
types of investments identified above, it is anticipated that most of the time
the majority of the Portfolio's assets will be invested in common stocks. The
investments of the Managed Portfolio are managed by Richard J. Glasebrook II,
Managing Director of Oppenheimer Capital.
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES AND POLICIES
For the Equity, the Mid Cap, the Small Cap and the Global Equity
Portfolios, at times when the investment climate is viewed as favorable,
common stocks will be heavily emphasized. Under normal circumstances, at
least 65 percent of each Portfolio's assets will be invested in common stocks
or securities convertible into common stocks.
Under normal conditions, no less than 65 percent of the assets of the U.S.
Government Income Portfolio will be invested in the debt securities identified
under "U.S. Government Income Portfolio."
In the event that future economic or financial conditions adversely affect
equity securities, or stocks are considered overvalued, each of the Equity, Mid
Cap, Small Cap and Global Equity Portfolios may invest a substantial portion of
its assets in debt securities, with an emphasis on money market instruments or
cash and cash equivalents. The U.S. Government Income Portfolio may increase
the proportion of its assets which are invested in money market instruments or
cash in the event that the Manager deems such investments advisable to preserve
capital.
Each Portfolio (other than the Money Market Portfolio) will in the normal
course have varying amounts of cash assets which have not yet been invested in
accordance with its objectives. This cash will be temporarily invested in high
quality short term money market securities and cash equivalents.
Regulations under Section 817(h) of the Internal Revenue Code ("IRC
817(h)") require each Portfolio to diversify its investments. To comply with
these regulations each Portfolio is required to diversify its investments so
that on the last day of each quarter of a calendar year no more than 55 percent
of the value of its total assets is represented by any one investment, no more
than 70 percent is represented by any two investments, no more than 80 percent
is represented by any three investments, and no more than 90 percent is
represented by any four investments. For this purpose, securities of a given
issuer generally are treated as one investment, but each U.S.
20
<PAGE>
Government agency and instrumentality is treated as a separate and distinct
issuer. As such, any security issued, guaranteed, or insured (to the extent
so guaranteed or insured) by the U.S. or an agency or instrumentality of the
U.S. is treated as a security issued by the U.S. Government or its agency or
instrumentality, whichever is applicable. These diversification rules limit
the amount that any Portfolio, and in particular the U.S. Government Income
Portfolio can invest in any single issuer, including direct obligations of
the U.S. Treasury, to 55 percent of the Portfolio's total assets at the end
of any calendar quarter.
SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO INVESTS
(1) Securities issued or guaranteed by the U.S. Government.
(2) Obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government. Some of such obligations may be supported by the
full faith and credit of the U.S. Treasury while others may be
supported only by the credit of the particular Federal agency or
instrumentality issuing the obligation.
(3) Certificates of deposit, bankers' acceptances and letters of credit of
prime quality of U.S. banks and savings and loan associations and
their foreign branches (Eurodollars), foreign banks, and U.S. branches
of foreign banks (Yankees) having total assets in excess of $500
million.
(4) Certificates of deposit of prime quality fully insured as to principal
by the Federal Deposit Insurance Corp.
(5) Commercial paper of prime quality.
(6) Corporate notes, bonds and debentures that have a remaining maturity
of 365 calendar days or less if a class of short term debt comparable
with the security issued by the same issuer is of prime quality.
(7) Repurchase agreements involving securities listed above, which are
described on page 19 of this Prospectus.
The Portfolio operates under Rule 2a-7 adopted under the Investment Company
Act of 1940 (the "Rule") which, if certain conditions are met, allows the
Portfolio to use the amortized cost method of valuing its portfolio securities
to determine its net asset value per share. As long as the Portfolio continues
to use the Rule, it must abide by certain conditions. Some of those conditions
relate to portfolio management: (i) it must maintain a dollar-weighted average
portfolio maturity not in excess of 90 days; (ii) it must limit its investments,
including repurchase agreements, to those instruments which are denominated in
U.S. dollars, and which are of "prime quality" as determined by any major rating
service or in the case of any instrument that is not rated, of comparable
quality as determined by the Board of Trustees in accordance with procedures
adopted pursuant to the Rule; and (iii) it may not purchase any instruments with
a remaining maturity of more than thirteen months. For the purposes of this
prospectus, prime quality shall mean the security (or the issuer for a
comparable security) is rated in one of the two highest rating categories for
short-term debt obligations by any two of Moody's Investors Service, Inc.
("Moodys"), Standard & Poor's Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff & Phelps") or Thomson's BankWatch, Inc.,
or by one of such rating agencies if only one rating agency has issued a rating
with respect to the security, or, if not rated, judged by the Manager pursuant
to criteria adopted by the Fund's Board of Trustees to be of comparable quality.
See the Appendix for a description of ratings. In addition, the Rule requires
that investments by the Money Market Portfolio which do not satisfy one of the
following requirements are limited in the aggregate to 5 percent of the
Portfolio's assets in regard to issues and 1 percent of assets (or $1 million if
greater) in regard to any one issuer of such issues: (i) issues rated in the
highest category (or the issuer is so rated for a comparable security) by at
least two of such rating agencies; or (ii) if rated by only one agency, rated in
the highest category; or (iii) if unrated determined by the Board of Trustees to
be of quality comparable to issues which qualify under (i) or (ii). For further
information, see "Determination of Net Asset Value" in the Additional Statement.
21
<PAGE>
MANAGEMENT OF ASSETS
The Manager intends to manage each Portfolio's assets by buying and selling
securities to help attain its investment objective. This may result in
increases or decreases in a Portfolio's current income available for
distribution to its shareholders. While none of the Portfolios is managed with
the intent of generating short-term capital gains, each of the Portfolios may
dispose of investments (including money market instruments) regardless of the
holding period if, in the opinion of the Manager, an issuer's creditworthiness
or perceived changes in a company's growth prospects or asset value make selling
them advisable. Such an investment decision may result in capital gains or
losses and could result in a high portfolio turnover rate during a given period,
resulting in increased transaction costs related to equity securities.
Disposing of debt securities in these circumstances should not increase direct
transaction costs since debt securities are normally traded on a principal basis
without brokerage commissions. However, such transactions do involve a mark-up
or mark-down of the price.
During periods of unusual market conditions when the Manager believes that
investing for defensive purposes is appropriate, or in order to meet anticipated
redemption requests, part or all of the assets of one or more of the Portfolios
may be invested in cash or cash equivalents including obligations listed above.
The "Financial Highlights" table shows the Portfolios' portfolio turnover
rates. The portfolio turnover rates of the Portfolios cannot be accurately
predicted. Nevertheless, it is anticipated that the Equity, Mid Cap, Managed
and Global Equity Portfolios will have an annual turnover rate (excluding
turnover of securities having a maturity of one year or less) of 100 percent or
less and that the U.S. Government Income Portfolio will have an annual turnover
rate of 200 percent or less. It is anticipated that the Small Cap Portfolio
will have an annual turnover rate in excess of 100 percent. A 100 percent
annual turnover rate would occur, for example, if all the securities in a
Portfolio's investment portfolio were replaced once in a period of one year. A
portfolio turnover rate in excess of 100 percent can be expected to result in
correspondingly higher transaction costs. Because the Money Market Portfolio
will consist of securities with a maturity of one year or less, the turnover
rate as defined is not meaningful. Because of the short-term nature of its
investments, it is anticipated that the number of purchases and sales or
maturities of such securities will be substantial.
RISK ASPECTS OF THE INDIVIDUAL PORTFOLIOS
MONEY MARKET PORTFOLIO. The Money Market Portfolio conforms to requirements
which permit it to maintain a constant net asset value of $1.00 per share
through use of the amortized cost method of valuation. The Money Market
Portfolio may invest in U.S. dollar denominated securities of foreign branches
of U.S. banks and U.S. branches of foreign banks. These investments involve
risks that are different from investments in securities of U.S. banks. While
there is no risk from exchange rate fluctuations, there may be risk of future
unfavorable political and economic developments, possible withholding taxes,
seizure of foreign deposits, currency controls, interest limitations or other
governmental restrictions which might affect payment of principal or interest.
Additionally, there may be less public information available about foreign banks
and their branches.
MANAGED AND U.S. GOVERNMENT INCOME PORTFOLIOS. An investment in the
Managed Portfolio will entail both market and financial risk, the extent of
which depends on the amount of the Portfolio's assets which are committed to
equity, longer term debt or money market securities at any particular time. The
U.S. Government Income Portfolio is expected to have greater interest rate risk
due to the Portfolio's primary investments in mortgage-backed securities. As
the Managed Portfolio may and the U.S. Government Income Fund will invest in
mortgage-backed securities, such securities, while similar to other fixed-income
securities, involve the additional risk of prepayment because mortgage
prepayments are passed through to the holder of the mortgage-backed security and
must be reinvested. Prepayments of mortgage principal reduce the stream of
future payments and generate cash which must be reinvested. When interest rates
fall, prepayments tend to rise. As such these Portfolios may have to reinvest
that portion of their respective assets invested in such securities more
frequently when interest rates are low than when interest rates are high.
MID CAP PORTFOLIO. The Mid Cap Portfolio is expected to have greater risk
exposure and reward potential than a portfolio which invests primarily in
larger-capitalization companies. The trading volumes of securities of
mid-capitalization companies are normally less than those of
larger-capitalization companies. This often translates
22
<PAGE>
into greater price swings. The waiting period for the achievement of an
investor's objectives might be longer since these securities are not as closely
monitored by research analysts. Thus, it takes more time for investors to
become aware of fundamental changes or other factors which have motivated the
Portfolio's purchase. However, mid-capitalization companies often achieve
higher growth rates and may experience higher failure rates than do
large-capitalization companies.
SMALL CAP PORTFOLIO. The Small Cap Portfolio is expected to have greater
risk exposure and reward potential than a portfolio which invests primarily in
larger-capitalization companies. The trading volumes of securities of
smaller-capitalization companies are normally less than those of
larger-capitalization companies. This often translates into greater price
swings, both upward and downward. The waiting period for the achievement of an
investor's objectives might be longer since these securities are not closely
monitored by research analysts and, thus, it takes more time for investors to
become aware of fundamental changes or other factors which have motivated the
Portfolio's purchase. Smaller-capitalization companies often achieve higher
growth rates and experience higher failure rates than do larger-capitalization
companies.
ADDITIONAL RISKS OF FOREIGN SECURITIES: The Global Equity, Equity, Mid
Cap, Small Cap and Managed Portfolios may purchase foreign securities that are
listed on a domestic or foreign securities exchange, traded in domestic or
foreign over-the counter markets or represented by American Depository Receipts.
There is no limit to the amount of such foreign securities the Portfolios may
acquire. It will be the general practice of the Global Equity Portfolio to
invest in foreign equity securities. Certain factors and risks are presented by
investment in foreign securities which are in addition to the usual risks
inherent in domestic securities. Foreign companies are not necessarily subject
to uniform accounting, auditing and financial reporting standards or other
regulatory requirements comparable to those applicable to U.S. companies. Thus,
there may be less available information concerning non-U.S. issuers of
securities held by a Portfolio than is available concerning U.S. companies. In
addition, with respect to some foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation; income earned in the
foreign nation being subject to taxation, including withholding taxes on
interest and dividends, or other taxes imposed with respect to investments in
the foreign nation; limitations on the removal of securities, property or other
assets of a fund; difficulties in pursuing legal remedies and obtaining
judgments in foreign courts, or political or social instability or diplomatic
developments which could affect U.S. investments in those countries. For a
description of the risks of possible losses through holding of securities in
foreign custodian banks and depositories, see "Investment of Assets" in the
Additional Statement.
Securities of many non-U.S. companies may be less liquid and their prices
more volatile than securities of comparable U.S. companies. Non-U.S. stock
exchanges and brokers are generally subject to less governmental supervision and
regulation than in the U.S. and commissions on foreign stock exchanges are
generally higher than negotiated commissions on U.S. transactions. In addition,
there may in certain instances be delays in the settlement of non-U.S. stock
exchange transactions. Certain countries restrict foreign investments in their
securities markets. These restrictions may limit or preclude investment in
certain countries, industries or market sectors, or may increase the cost of
investing in securities of particular companies. Purchasing the shares of
investment companies which invest in securities of a given country may be the
only or the most efficient way to invest in that country. This may require the
payment of a premium above the net asset value of such investment companies and
the return will be reduced by the operating expenses of those investment
companies.
A decline in the value of the U.S. dollar against the value of any
particular currency will cause an increase in the U.S. dollar value of a
Portfolio's holdings denominated in such currency. Conversely, a decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of the Portfolio's holdings of securities denominated in
such currency. Some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets which could adversely affect a Portfolio. The
Portfolios do not intend to speculate in foreign currency in connection with the
purchase or sale of securities on a foreign securities exchange but may enter
into foreign currency contracts to hedge their foreign currency exposure. While
those transactions may minimize the impact of currency appreciation and
depreciation, the Portfolios will bear a cost for entering into the transaction
and such transactions do not protect against a decline in the security's value
relative to other securities denominated in that currency.
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It is expected that the Global Equity Portfolio will invest in American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), or Global
Depository Receipts ("GDRs") which are sponsored by persons other than the
underlying issuers. ADRs are U.S. dollar-denominated securities designed for
use in the U.S. securities markets. They represent and may be converted into
the underlying foreign security. EDRs are designed for use in the European
securities market. Issuers of the stock of such unsponsored ADRs are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
such ADRs.
EMERGING MARKET COUNTRIES: Certain developing countries may have relatively
unstable governments, economies based on only a few industries that are
dependent upon international trade and reduced secondary market liquidity.
Foreign investment in certain emerging market countries is restricted or
controlled in varying degrees. In the past, securities in these countries have
experienced greater price movement, both positive and negative, than securities
of companies located in developed countries. Lower-rated high-yielding emerging
market securities may be considered to have speculative elements.
HIGH YIELD SECURITIES: It is the present intention of the Manager with
respect to each of the Equity, Mid Cap, Small Cap, Global Equity and Managed
Portfolios to invest no more than 5 percent of its net assets in bonds rated
below Baa3 by Moody's or BBB- by S&P (commonly known as "junk bonds"). In the
event that the Manager intends in the future to invest more than 5 percent of
the net assets of any such Portfolio in junk bonds, appropriate disclosures will
be made to existing and prospective shareholders. For information about the
possible risks of investing in junk bonds see "Investment of Assets" in the
Additional Statement.
OPTIONS AND FUTURES: To the extent permitted by applicable state law, the
Global Equity, Mid Cap, Small Cap and Equity Portfolios may engage in futures
contracts and options on futures contracts for bona fide hedging or other
non-speculative purposes. The Global Equity and Small Cap Portfolios may also
engage in options on stock indices. The Mid Cap, Small Cap and Equity
Portfolios may write covered call options on individual securities and the Mid
Cap Portfolio may write uncovered calls and puts. These Portfolios will not
enter into any leveraged futures transactions. Different uses of futures and
options have different risk and return characteristics. Generally, selling
futures contracts, purchasing put options and writing call options are
strategies designed to protect against falling security prices and can limit
potential gains if prices rise. Purchasing futures contracts, purchasing call
options and writing put options are strategies whose returns tend to rise and
fall together with securities prices and can cause losses if prices fall. If
securities prices remain unchanged over time, option writing strategies tend to
be profitable while option buying strategies tend to be unprofitable. For more
information about Options and Futures see "Investment Techniques" in this
Prospectus and "Investment of Assets" in the Additional Statement.
INVESTMENT TECHNIQUES
The investment techniques or instruments described below are used for the
Portfolios' investment programs:
SHORT-TERM INVESTMENTS. Each Portfolio, other than the Money Market
Portfolio, typically invests a part of its assets in various types of U.S.
Government securities and high quality, short-term debt securities with
remaining maturities of one year or less ("money market instruments"). The
Money Market Portfolio invests all of its assets in these types of securities.
This type of short-term investment is made to provide liquidity for the
purchase of new investments and to effect redemptions of shares. The money
market instruments in which each Portfolio may invest include government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate securities and repurchase agreements.
REPURCHASE AGREEMENTS. Each Portfolio may acquire securities subject to
repurchase agreements. Under a typical repurchase agreement, a Portfolio would
acquire a debt security for a relatively short period (usually for one day and
not for more than one week) subject to an obligation of the seller to repurchase
and of the Portfolio to resell the debt security at an agreed-upon higher price,
thereby establishing a fixed investment return during the Portfolio's holding
period. A Portfolio will enter into repurchase agreements with member banks of
the
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Federal Reserve System having total assets in excess of $500 million and with
dealers registered with the SEC. Under each repurchase agreement the selling
institution will be required to maintain as collateral securities whose market
value is at least equal to the repurchase price. Repurchase agreements could
involve certain risks in the event of default or insolvency of the selling
institution, including costs of disposing of securities held as collateral and
any loss resulting from delays or restrictions upon the Portfolio's ability to
dispose of securities. Pursuant to guidelines established by the Portfolio's
Board of Trustees, the Manager considers the creditworthiness of those banks and
non-bank dealers with which a Portfolio enters into repurchase agreements and
monitors on an ongoing basis the value of securities held as collateral to
ensure that such value is maintained at the required level. A Portfolio will
not enter into a repurchase agreement with a dealer if the agreement has a
maturity beyond seven days. The staff of the SEC has taken the position that
repurchase agreements are loans collateralized by the underlying securities.
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities if such loans are secured continuously by collateral (cash, U.S.
Government or agency obligations or letters of credit) maintained on a daily
basis in an amount at least equal at all times to the market value of the
securities loaned and if the Portfolio does not incur any fees (other than the
transaction fees of its custodian bank) in connection with such loans. A
Portfolio may call the loan at any time on five days' notice and reacquire the
loaned securities. During the loan period, the Portfolio would continue to
receive the equivalent of the interest paid by the issuer on the securities
loaned and would also have the right to receive the interest on investment of
the cash collateral in short-term debt instruments. A portion of either or both
kinds of such interest may be paid to the borrower of such securities. It is
not intended that the value of the securities loaned, if any, would exceed 10
percent of the value of the total assets of the Equity, Mid Cap, Small Cap,
Managed and Money Market Portfolios and 33 1/3 percent of the value of the total
assets of the U.S. Government Income and Global Equity Portfolios. Securities
loans must also meet applicable tests under the Internal Revenue Code. A
Portfolio could experience various costs or loss if a borrower defaults on its
obligation to return the borrowed securities.
OPTIONS AND FUTURES. To the extent permitted by applicable state law, the
Global Equity, Mid Cap, Small Cap and Equity Portfolios may engage in options
and futures transactions. The Global Equity Portfolio may purchase and sell
financial futures contracts (including bond futures contracts and index futures
contracts), forward foreign currency contracts, foreign currency futures
contracts, options on futures contracts and stock indices and options on
currencies for bona fide hedging or other non-speculative purposes. The Mid
Cap, Small Cap and Equity Portfolios may engage in futures contracts or options
on futures contracts for bona fide hedging or other non-speculative purposes and
to write calls on individual securities. The Mid Cap, Small Cap, Equity and
Managed Portfolios may also enter into forward foreign currency contracts to
purchase or sell foreign currencies in connection with any transactions in
foreign securities. The Small Cap Portfolio may also engage in options on stock
indices. When any of such Portfolios anticipate a significant market or market
sector advance, the purchase of a futures contract affords a hedge against not
participating in the advance at a time when such Portfolio is not fully invested
("anticipatory hedge"). Such a purchase of a futures contract would serve as a
temporary substitute for the purchase of individual securities, which then may
be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Portfolios may sell futures
contracts in anticipation of or in a general market or market sector decline
that may adversely affect the market value of such Portfolio's securities
("defensive hedge"). To the extent that the Portfolios' securities change in
value in correlation with the underlying security or index, the sale of futures
contracts would substantially reduce the risk to the Portfolios of a market
decline and by so doing, provide an alternative to the liquidation of securities
positions in the Portfolios with attendant transaction costs. So long as the
Commodities Futures Trading Commission rules so require, none of the Portfolios
will enter into any financial futures or options contract unless such
transactions are for bona fide hedging purposes, or for other purposes only if
the aggregate initial margins and premiums required to establish such
non-hedging positions would not exceed 5 percent of the liquidation value of
such Portfolio's assets. When writing put options, the Fund, on behalf of the
Portfolio, will maintain in a segregated account at its Custodian liquid assets
with a value equal to at least the exercise price of the option to secure its
obligation to pay for the underlying security. As a result, such Portfolio
forgoes the opportunity of trading the segregated assets or writing calls
against those assets. There may not be a complete correlation between the price
of options and futures and the market prices of the underlying securities. The
Portfolio may lose the ability to profit from an increase in the market value of
the underlying security or may
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lose its premium payment. If due to a lack of a market a Portfolio could not
effect a closing purchase transaction with respect to an OTC option, it would
have to hold the callable securities until the call lapsed or was exercised.
MORTGAGE-BACKED SECURITIES. The U.S. Government Income and Managed
Portfolios may invest in a type of mortgage-backed security known as modified
pass-through certificates. Each certificate evidences an interest in a specific
pool of mortgages that have been grouped together for sale and provides
investors with payments of interest and principal. The issuer of modified
pass-through certificates guarantees the payment of the principal and interest
whether or not the issuer has collected such amounts on the underlying mortgage.
The average life of these securities varies with the maturities of the
underlying mortgage instruments (generally up to 30 years) and with the extent
of prepayments on the mortgages themselves. Any such prepayments are passed
through to the certificate holder, reducing the stream of future payments.
Prepayments tend to rise in periods of falling interest rates, decreasing the
average life of the certificate and generating cash which must be invested in a
lower interest rate environment. This could also limit the appreciation
potential of the certificates when compared to similar debt obligations which
may not be paid down at will, and could cause losses on certificates purchased
at a premium or gains on certificates purchased at a discount. Ginnie Mae
certificates represent pools of mortgages insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veteran's
Administration. The guarantee of payments under these certificates is backed by
the full faith and credit of the United States. Fannie Mae is a
government-sponsored corporation owned entirely by private stockholders. The
guarantee of payments under these instruments is that of Fannie Mae only. They
are not backed by the full faith and credit of the United States but the U.S.
Treasury may extend credit to Fannie Mae through discretionary purchases of its
securities. The U.S. Government has no obligation to assume the liabilities of
Fannie Mae. Freddie Mac is a corporate instrumentality of the United States
government whose stock is owned by the Federal Home Loan Banks. Certificates
issued by Freddie Mac represent interest in mortgages from its portfolio.
Freddie Mac guarantees payments under its certificates but this guarantee is not
backed by the full faith and credit of the United States and Freddie Mac does
not have authority to borrow from the U.S. Treasury.
The coupon rate of these instruments is lower than the interest rate on the
underlying mortgages by the amount of fees paid to the issuing agencies, usually
approximately 1/2 of 1 percent. It is not anticipated that the Portfolios'
investments will have any particular maturity. Mortgage-backed securities, due
to the scheduled periodic repayment of principal, and the possibility of
accelerated repayment of underlying mortgage obligations, fluctuate in value in
a different manner than other, non-redeemable debt securities. The U.S.
Government Income and Managed Portfolios also may invest in "collateralized
mortgage obligations" ("CMO's") which are debt obligations secured by
mortgage-backed securities where the investor looks only to the issuer of the
security for payment of principal and interest.
PORTFOLIO TRANSACTIONS. The Manager's primary consideration when executing
security transactions with broker-dealers is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. The Manager may select CIBC Oppenheimer Corp. ("CIBC
Oppenheimer"), a former affiliate of the Manager, to execute each Portfolio's
transactions. Selection of broker-dealers to execute portfolio transactions
must be done in a manner consistent with the foregoing primary consideration,
the "Rules of Fair Practice" of the National Association of Securities Dealers,
Inc. and such other policies as the Board of Trustees may determine. (For a
further discussion of portfolio trading, see the Additional Statement,
"Investment Management and Other Services.")
INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain investment restrictions which,
together with its investment objective, are fundamental policies changeable only
by shareholder vote. (The restrictions in 1, 2 and 3 do not apply to U.S.
Government securities.) Under some of those restrictions, each Portfolio may
not:
1. Invest more than 5 percent of the value of its total assets in the
securities of any one issuer, or purchase more than 10 percent of the voting
securities, or more than 10 percent of any class of security, of any issuer (for
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this purpose all outstanding debt securities of an issuer are considered as one
class and all preferred stock of an issuer are considered as one class).
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attaining its investment objective, a Portfolio may invest up to
25 percent of its total assets (valued at the time of investment) in any one
industry classification used by that Portfolio for investment purposes.
3. Invest more than 5 percent of the value of its total assets in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation.
4. Make loans, except through the purchase of U.S. Government securities
and corporate debt obligations, repurchase agreements or lending portfolio
securities as described above under "Loans of Portfolio Securities".
5. Borrow money in excess of 10 percent of the value of its total assets.
It may borrow only as a temporary measure for extraordinary or emergency
purposes and will make no additional investments while such borrowings exceed 5
percent of the total assets. Such prohibition against borrowing does not
prohibit escrow or other collateral or margin arrangements in connection with
the hedging instruments which a Portfolio is permitted to use by any of its
other fundamental policies.
6. Invest more than 15 percent of its assets in illiquid securities
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. (Money
Market Portfolio may not invest more than 10 percent of its assets in illiquid
securities.) Other investment restrictions are described in the Additional
Statement.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in the amount of total assets does not
require elimination of any security from a Portfolio.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees has overall responsibility for the management
of the Fund under the laws of Massachusetts governing the responsibilities of
trustees of a Massachusetts business trust. In general, such responsibilities
are comparable to those of directors of a Massachusetts business corporation.
The Board of Trustees of the Fund has undertaken to monitor the Fund for the
existence of any material irreconcilable conflict between the interests of
variable annuity Contractowners, variable life insurance Contractowners and
Qualified Plans due to the difference of tax treatment and other considerations,
and shall report any such conflict to the boards of the respective life
insurance companies which use the Fund as an investment vehicle for their
respective variable annuity and life insurance contracts and to the Qualified
Plans. The Boards of Directors of those life insurance companies and the
Manager have agreed to be responsible for reporting any potential or existing
conflicts to the Trustees of the Fund. If a material irreconcilable conflict
exists that affects those life insurance companies, those life insurance
companies have agreed, at their own cost, to remedy such conflict up to and
including establishing a new registered management investment company and
segregating the assets underlying the variable annuity contracts and the
variable life insurance contracts. Qualified Plans which acquire more than 10
percent of the assets of the Fund will be required to report any potential or
existing conflicts to the Trustees of the Fund, and if a material irreconcilable
conflict exists, to remedy such conflict, up to and including redeeming Shares
of the Portfolios held by the Qualified Plans. The Additional Statement
contains information about the Trustees and Officers.
THE ADVISORY AGREEMENT. The Manager is responsible for management of the
Fund's business. Pursuant to the investment advisory agreement (the "Advisory
Agreement") with the Fund, and subject to the authority of the Board of
Trustees, the Manager supervises the investment operations of each Portfolio,
furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities and provides certain
administrative services for the Fund.
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Under the Advisory Agreement the annual management fee is computed at an
annual rate of .80 percent on the first $400 million, .75 percent on the next
$400 million and .70 percent thereafter of the average daily net assets for the
Equity, Mid Cap, Global Equity, Managed and Small Cap Portfolios, .60 percent of
the average daily net assets of the U.S. Government Income Portfolio, and .40
percent of the average daily net assets of the Money Market Portfolio.
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 the Global Equity Portfolio
of the Fund do not exceed 1.25 percent of its average daily net assets and so
that the total operating expenses (net of any expense offsets) of each of the
other Portfolios of the Fund do not exceed 1.00% of their respective average
daily net assets.
The Manager is a subsidiary of Oppenheimer Capital, a registered investment
adviser with approximately $61.4 billion in assets under management on December
31, 1997. All investment management services performed under the Advisory
Agreement are performed by employees of Oppenheimer Capital. On November 4,
1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered investment adviser
with $125 billion in assets under management through various subsidiaries, and
its affiliates acquired control of Oppenheimer Capital and its subsidiary OpCap
Advisors, the Manager of the Fund. A new Advisory Agreement (on identical terms
as the previous Advisory Agreement) between the Fund and OpCap Advisors became
effective November 5, 1997. The new Advisory Agreement was approved by the
shareholders of each Portfolio of the Fund at a Special Meeting of Shareholders
held on October 14, 1997. On November 30, 1997, Oppenheimer Capital merged with
a subsidiary of PIMCO Advisors and, as a result, Oppenheimer Capital and OpCap
Advisors became indirect wholly-owned subsidiaries of PIMCO Advisors. PIMCO
Advisors has two general partners: PIMCO Partners, G.P. (PIMCO G.P.") a
California general partnership, and PIMCO Advisors Holdings L.P. (formerly
Oppenheimer Capital, L.P.), an NYSE-listed Delaware limited partnership of which
PIMCO G.P. is the sole general partner. PIMCO GP beneficially owns or controls
(through its general partner interest in PIMCO Advisors Holdings, L.P. formerly
Oppenheimer Capital, L.P.) greater than 80% of the units of limited partnership
("Units") of PIMCO Advisors. PIMCO GP has two general partners. The first of
these is Pacific Investment Management Company, a wholly-owned subsidiary of
Pacific Financial Asset Management Company, which is a direct subsidiary of
Pacific Life Insurance Company ("Pacific Life"). The managing general partner
of PIMCO GP is PIMCO Partners L.L.C. ("PPLLC"), a California limited liability
company. 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, Brent R. Harris, John L.
Hague, William S. Thompson Jr., William S. Powers, David H. Edington, Benjamin
Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO Advisors is governed
by a Management Board, which consists of sixteen members, pursuant to a
delegation by its general partners PIMCO GP has the power to designate up to
nine members of the Management Board and the PIMCO Subpartnership, of which the
PIMCO Managers are the Managing Directors, has the power to designate up to two
members. In addition, PIMCO GP, as the controlling general partner of PIMCO
Advisors, has the power to revoke the delegation to the Management Board and
exercise control of PIMCO Advisors. As a result, Pacific Life and/or the PIMCO
Managers may be deemed to control PIMCO Advisors. Pacific Life and the PIMCO
Managers disclaim such control. Because of direct or indirect power to appoint
25% of the members of the Equity Board, (i) Pacific Life and (ii) the PIMCO
Managers and/or the PIMCO Subpartnership may each be deemed, under applicable
provisions of the Investment Company Act, to control PIMCO Advisors. Pacific
Life, the PIMCO Subpartnership and the PIMCO Managers disclaim such control.
The Additional Statement contains more information about the Advisory Agreement,
including a more complete description of the management fee and expense
arrangements, exculpation provisions and portfolio transactions for the Fund.
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DETERMINATION OF NET ASSET VALUE
The net asset value per share is calculated separately for each Portfolio.
The net asset value of each Portfolio is determined at the close of the regular
trading session ("Close") of the NYSE (currently 4:00 p.m. Eastern Time) each
day the NYSE is open and on each other day on which there is a sufficient degree
of trading in any Portfolio's securities affecting materially the value of such
securities (if the Fund receives a request to redeem its shares that day), by
dividing the value of the Portfolio's net assets by the number of shares
outstanding. The Fund's Board of Trustees has established procedures to value
the Portfolios' securities to determine net asset value; in general, except for
the Money Market Portfolio, those valuations are based on market value, with
special provisions for (i) securities (including restricted securities) not
having readily-available market quotations and (ii) short-term debt securities.
Securities listed on a national securities exchange or designated as national
market system securities are valued at the last sale price or, if there has been
no sale that day or on the previous day on which the exchange was open (if a
week has not elapsed between such days), at the last bid price. Debt and equity
securities actively traded in the over-the-counter market but not designated as
national market system securities are valued at the most recent bid price.
Valuations may be provided by a pricing service or from independent securities
dealers. Short-term investments with remaining maturities of less than 60 days
are valued at amortized cost so long as the Fund's Board of Trustees determines
in good faith that such method reflects fair value. Other securities are valued
by methods that the Fund's Board of Trustees believes accurately reflect fair
value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the Close of the NYSE. The values of such
securities used in computing the net asset value of a Portfolio's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the Close of the NYSE. If events materially affecting the
value of such securities and exchange rates occur between the time of such
determination and/or the Close of the NYSE, then these securities will be valued
at their fair value as determined in good faith under procedures established by
and under the supervision of the Fund's Board. Further details are in the
Additional Statement. The Money Market Portfolio uses the amortized cost method
of valuation as described in "Additional Information on Investment Objectives
and Policies - Securities in which the Money Market Portfolio Invests" in this
Prospectus and "Determination of Net Asset Value" in the Additional Statement
and generally will have a constant net asset value of $1.00 per share except
under extraordinary circumstances.
PURCHASE OF SHARES
Investments in the Fund may be made only by Variable Accounts and
Qualified Plans. Persons desiring to purchase Contracts funded by any Portfolio
or Portfolios of the Fund should read this Prospectus in conjunction with the
Prospectus of the Variable Accounts.
Shares of each Portfolio of the Fund are offered to the Variable Accounts
and Qualified Plans without sales charge at the respective net asset values of
the Portfolios next determined after receipt by the Fund of the purchase payment
in the manner set forth above under "Determination of Net Asset Value."
Certificates representing shares of the Fund will not be physically issued. OCC
Distributors acts without remuneration from the Fund as the exclusive
Distributor of the Fund's shares. The principal executive office of the
Distributor is located at Two World Financial Center, New York, New York l0080.
REDEMPTION OF SHARES
Shares of any Portfolio of the Fund can be redeemed by the Variable
Accounts and Qualified Plans at any time for cash, at the net asset value next
determined after receipt of the redemption request in proper form. The market
value of the securities in each of the Portfolios is subject to daily
fluctuation and the net asset value of each Portfolio's shares, other than
shares of the Money Market Portfolio, are expected to fluctuate accordingly.
The redemption value of the Fund's shares may be either more or less than the
original cost to the Variable Accounts. Payment for redeemed shares is
ordinarily made within seven days after receipt by the Fund's transfer agent of
redemption instructions in proper form. The redemption privilege may be
suspended and payment postponed during any period when: (l) the NYSE is closed
other than for customary weekend or holiday closings or trading
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thereon is restricted as determined by the SEC; (2) an emergency, as defined by
the SEC exists making trading of portfolio securities or valuation of net assets
not reasonably practicable; (3) the SEC has by order permitted such suspension.
STATE LAW RESTRICTIONS
The investments of the Variable Accounts are subject to the provisions of
the insurance laws of the States of domicile of the life insurance companies
offering the Contracts. The Fund and its Portfolios will voluntarily comply with
the statutory investment restrictions applicable to the investments of life
insurance company separate accounts, of the States of domicile of the life
insurance companies offering the Contracts, even though these state law
investment restrictions do not apply to the Fund and its Portfolios. For a
description of the state law restrictions applicable to the separate accounts of
the life insurance companies offering the Contracts, see the Prospectus for the
Variable Accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to distribute substantially all of its net
investment income and any net realized capital gains. Dividends from net
investment income and any distributions of realized capital gains will be paid
in additional shares of the Portfolio paying the dividend or making the
distribution and credited to the shareholder's account unless the shareholder
elects to receive such dividends or distributions in cash.
MONEY MARKET PORTFOLIO. Dividends from net income on the Money Market
Portfolio will be declared on each day the NYSE is open for business to
shareholders of record as of the close of business the preceding business day.
Net income, for dividend purposes, includes accrued interest and accretion of
any discount, less the amortization of market premium and the estimated expenses
of the Money Market Portfolio. The amount of dividend may fluctuate from day to
day and may be omitted on some days. Daily dividends accrued since the prior
dividend payment will be paid monthly. Any net realized long-term capital gains
will be declared and paid at least once per calendar year; net short-term gains
may be paid more frequently, with the distribution of dividends from net
investment income.
U.S. GOVERNMENT INCOME PORTFOLIO. Dividends from net investment income on
the U.S. Government Income Portfolio will be declared on each day the NYSE is
open for business to shareholders of record as of the close of business the
preceding business day. The Portfolio will pay monthly dividends from net
investment income. Distributions of realized net short-term capital gains, if
any, and realized long-term capital gains will be declared and paid at least
once per calendar year.
EQUITY, MID CAP, SMALL CAP, GLOBAL EQUITY AND MANAGED PORTFOLIOS.
Dividends from net investment income, if any, on the Small Cap, Mid Cap, Equity,
Global Equity and Managed Portfolios will be declared and paid at least
annually, and any net realized capital gains, if any, will be declared and paid
at least once per calendar year.
TAXES. Because the Fund intends to distribute all of the net investment
income and capital gains of each Portfolio and otherwise qualify each Portfolio
as a regulated investment company under Subchapter M of the 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.
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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 JUNE 30, 1997 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.72 % 4.83 %
PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. The performance data for
these Portfolios will reflect the "total return" and may reflect the "yield.".
The "yield" of each of these Portfolios refers to the income generated by an
investment in that Portfolio over the 30 day period stated in the advertisement
and is the result of dividing that income by the value of the Portfolio. The
value of each Portfolio is the average daily number of shares outstanding
multiplied by the net asset value per share on the last day of the period.
"Total Return" for each of these Portfolios refers to the value a Shareholder
would receive on the date indicated if a $1,000 investment had been made the
indicated number of years ago. It reflects historical investment results less
charges and deductions of the Fund.
YIELD FOR 30-DAY PERIOD ENDED JUNE 30, 1997 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.66 %
(1)Reflects waiver of a portion of the advisory fees by the Manager. Had the
waiver not been in effect during the period, the yield would have been 5.09
percent for the U.S. Government Income Portfolio.
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<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MID CAP, MANAGED, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS
OF OCC ACCUMULATION TRUST(1,2)
<TABLE>
<CAPTION>
For the one year For the five year For the period from
period ended period ended inception to
Portfolio June 30, 1997 June 30, 1997 June 30, 1997*
- --------- ------------- ------------- --------------
<S> <C> <C> <C>
Equity 26.63% 19.88% 17.21%
Mid-Cap N/A N/A N/A
Managed 28.54% 20.99% 20.63%
Small Cap 25.46% 15.96% 15.56%
U.S. Government Income 5.53% N/A 7.27%
Global Equity 21.78% N/A 20.93%
</TABLE>
*Inception date of the Global Equity Portfolio is March 1, 1995 and the
inception date of the U.S. Government Income Portfolio is January 3, 1995. The
Equity, Managed and Small Cap Portfolios commenced operations as part of the
Fund on September 16, 1994. The Old Trust commenced operations on August 1,
1988.
(1)On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two investment
funds, the Old Trust and the Fund, at which time the Fund commenced operations.
The total net assets for each of the Equity, Small Cap and Managed Portfolios
immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274 and $51,345,102
respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2)Reflects waivers of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager. Without
such waivers and reimbursements, the average annual total return during the
periods would have been lower.
In addition, reference in advertisements may be made to various indices,
including, without limitation, the S&P 500 Stock Index, the S&P Mid Cap Index,
the Wilshire 750 Mid Cap Index, the Russell Mid Cap Index, the Russell 2000, the
Lehman Brothers Corporate/Government Index, the Lehman Brothers US Government
Bond Index and the Morgan Stanley International (MSCI) All Country World 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.
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<PAGE>
The Fund's Board of Trustees, whose responsibilities are comparable to
those of directors of a Massachusetts corporation, is empowered to issue
additional classes of shares, which classes may either be identical except as to
dividends or may have separate assets and liabilities; classes having separate
assets and liabilities are referred to as "series". The creation of additional
series and offering of their shares (the proceeds of which would be invested in
separate, independently managed portfolios with distinct investment objectives,
policies and restrictions) would not affect the interests of the current
shareholders in the existing Portfolios.
The assets received by the Fund on the sale of shares of each Portfolio and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are allocated to each Portfolio, and constitute the assets of such
Portfolio. The assets of each Portfolio are required to be segregated on the
Fund's books of account. The Fund's Board of Trustees has agreed to monitor the
portfolio transactions and management of each of the Portfolios and to consider
and resolve any conflict that may arise.
VOTING. For matters affecting only one Portfolio, only the shareholders of
that Portfolio are entitled to vote. For matters relating to all the Portfolios
but affecting the Portfolios differently, separate votes by Portfolio are
required. Approval of an Investment Management Agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
each Portfolio. To the extent required by law, the Variable Accounts will vote
the shares of the Fund, or any Portfolio of the Fund, held in the Variable
Accounts in accordance with instructions from Contractowners, as described under
the caption "Voting Rights" in the accompanying Prospectus for the Variable
Accounts. Shares for which no instructions are received as well as shares which
the Manager or its parent, Oppenheimer Capital, may own, will be voted in the
same proportion as shares for which instructions are received. The Fund does
not intend to hold annual meetings of shareholders. However, the Board of
Trustees will call special meetings of shareholders for action by shareholder
vote as may be requested in writing by holders of 10 percent or more of the
outstanding shares of a Portfolio or as may be required by applicable laws or
the Declaration of Trust pursuant to which the Fund has been organized.
Under Massachusetts law shareholders could, in certain circumstances, be
held personally liable as partners for Fund obligations. The Fund's Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each instrument entered into or executed by the Fund. The Declaration of Trust
also provides for indemnification out of the Fund's property for any
shareholder held personally liable for any Fund obligation. Thus, the risk of
loss to a shareholder from being held personally liable for obligations of the
Fund is limited to the unlikely circumstance in which the Fund itself would be
unable to meet its obligations.
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets of the Fund is
State Street Bank and Trust Company, P.O. Box 8505, Boston, MA 02266-8505,
which also acts as transfer agent and shareholder servicing agent for the Fund.
CONTRACTOWNERS INQUIRIES. Inquiries concerning the purchase and sale of
shares of the Fund, dividends, account statements and management and investment
policies of the Fund should be directed to the respective life insurance
companies which use the Fund as an investment vehicle for their respective
variable annuity and life insurance contracts.
YEAR 2000 ISSUES. The management services provided to the Fund by the
Manager, and the services provided by the Transfer Agent to shareholders, depend
on the smooth functioning of their computer systems. Many computer software
systems in use today cannot recognize the year 2000, but revert to 1900 or some
other incorrect date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Manager and Transfer Agent
have been actively working on necessary changes to their own computer systems to
deal with the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time.
33
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER AND CORPORATE BOND RATINGS
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to
repay promissory obligations when due. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1 - Superior Ability for Repayment;
Prime 2 - Strong Ability for Repayment; Prime 3 - Acceptable Ability for
Repayment.
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. Issues assigned the
highest rating, "A", are regarded as having the greatest capacity for timely
payment. Issues in this category are delineated with the numbers "1", "2", and
"3" to indicate the relative degree of safety. The designation "A-1" indicates
that the degree of safety regarding timely payment is either overwhelming or
very strong. The "A+" designation is applied to those issues rated "A-1" which
possess overwhelming safety characteristics. Capacity for timely payment on
issues with the designation "A-2" is strong. However, the relative degree of
safety is not as high as for issues designated "A-1."
Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from "F-1+" which
represents exceptionally strong credit quality to "F-4" which represents weak
credit quality.
Duff's short-term ratings apply to all obligations with maturities of under
one year, including commercial paper, the uninsured portion of certificates of
deposit, unsecured bank loans, master notes, bankers acceptances, irrevocable
letters of credit and current maturities of long-term debt. Emphasis is placed
on liquidity. Ratings range for Duff 1+ for the highest quality to Duff 5 for
the lowest, issuers in default. Issues rated Duff 1+ are regarded as having the
highest certainty of timely payment. Issues rated Duff 1 are regarded as having
very high certainty of timely payment.
Thomson's BankWatch, Inc. assigns only one Issuer Rating to each company,
based upon a qualitative and quantitative analysis of the consolidated
financials of an issuer and its subsidiaries. The rating incorporates TBW's
opinion of the vulnerability of the company to adverse developments which may
impact the marketability of its securities, as well as the issuer's ability to
repay principal and interest. Ratings range from "TBW-1" for highest quality to
"TBW-3" for the lowest, companies with very serious problems.
BOND RATINGS
A bond rated "Aaa" by Moody's is judged to be the best quality. They carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is deemed secure.
While the various protective elements may change, such foreseeable changes are
unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. Margins of protection on "Aa" bonds may not be as large as on
"Aaa" securities or fluctuations of protective elements may be of greater
magnitude or there may be other elements present which make the long-term risks
appear somewhat larger than "Aaa" securities. Bonds which are rated "A" possess
many favorable investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment some time in the future. Bonds rated "Baa" are considered medium
grade obligations whose interest payments and principal security appear adequate
for the present but may lack certain protective elements or may be
characteristically unreliable over any great length of time. Moody's applies
numerical modifiers "1", "2" and "3" in each generic rating classification from
"Aa" through "B" in its corporate bond rating system. The modifier "1"
indicates that the security ranks in the higher end of its generic rating
category; the modifier "2" indicates a mid-range ranking; and the modifier "3"
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<PAGE>
indicates that the issue ranks in the lower end of its generic rating category.
Bonds rated "Ba" are judged to have speculative elements and bonds rated below
"Ba" are speculative to a higher degree.
Debt rated "AAA" by S&P has the highest rating assigned by it. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a
strong capacity to pay interest and repay principal and differs from "AAA"
issues only in small degree. Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated "BB" and below is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position within the category.
Debt rated "AAA", the highest rating by Fitch, is considered to be of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Debt rated "AA" is regarded as very high credit quality.
The obligor's ability to pay interest and repay principal is very strong. Debt
rated "A" is of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than debt with higher
ratings. Debt rated "BBB" is of satisfactory credit quality. The obligor's
ability to pay interest and repay principal is adequate, however a change in
economic conditions may adversely affect timely payment. Plus (+) and minus (-)
signs are used with a rating symbol (except "AAA") to indicate the relative
position within the category.
Debt rated "AAA", the highest rating by Duff is considered to be of the
highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt. Debt rated "AA" is regarded as high
credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. Debt rated "A" is
considered to have average but adequate protection factors. Bonds rated "BBB"
are considered to have below average protection factors but still sufficient for
prudent investment. Bonds rated "BB" and below are below investment grade and
possess fluctuating protection factors and risk. Plus (+) and minus (-) signs
are used with a rating symbol to indicate the relative position within the
category.
35
<PAGE>
Statement of Additional Information
OCC ACCUMULATION TRUST
One World Financial Center
New York, NY 10281
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated February 1, 1998, (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 FEBRUARY 1, 1998.
<PAGE>
TABLE OF CONTENTS
Page
----
Investment of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Control Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Management and Other Services . . . . . . . . . . . . . . . . . 23
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . 27
Dividends, Distribution and Taxes. . . . . . . . . . . . . . . . . . . . . 29
Portfolio Yield and Total Return Information . . . . . . . . . . . . . . . 29
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
liquidity of an investment in such obligations. The Money Market Portfolio will
not invest more than 5% of its total assets in collateralized mortgage
obligations. Investments will only be made in collateralized mortgage
obligations which are of high quality, as determined by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus (10% limit on illiquid investments for
Money Market Portfolio).
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing basis,
OpCap Advisors (the "Manager") will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. The Portfolios will not invest more than 5% of
their total assets in variable rate notes. Variable rate notes are subject to
the Portfolios' investment restrictions on illiquid securities unless such notes
can be put back to the issuer on demand within seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits
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<PAGE>
of federally insured banks and savings and loan associations (collectively
referred to as "banks") up to $100,000. The Portfolio may, within the limits set
forth in the Prospectus, purchase bank obligations which are fully insured as to
principal by the FDIC. Currently, to remain fully insured as to principal,
these investments must be limited to $100,000 per bank; if the principal amount
and accrued interest together exceed $100,000, the excess principal amount and
accrued interest will not be insured. Insured bank obligations may have limited
marketability. Unless the Board of Trustees determines that a readily available
market exists for such obligations, a Portfolio will treat such obligations as
subject to the 15% limit for illiquid investments set forth in the Prospectus
for each Portfolio (10% limit for illiquid investments for Money Market
Portfolio) unless such obligations are payable at principal amount plus accrued
interest on demand or within seven days after demand.
LOWER RATED BONDS. Each Portfolio except for the Money Market Portfolio
may invest up to 5% of its assets in bonds rated below Baa3 by Moody's Investors
Service, Inc. ("Moody's") or BBB- by Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"). These
securities are commonly known as "junk bonds." Securities rated less than Baa
by Moody's or BBB- by S&P are classified as non-investment grade securities and
are considered speculative by those rating agencies. It is the Fund's policy
not to rely exclusively on ratings issued by credit rating agencies but to
supplement such ratings with the Manager's own independent and ongoing review of
credit quality. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of the high yield securities market in the 1980s
had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized
that an economic downturn or increase in interest rates is likely to have a
negative effect on (i) the high yield bond market, (ii) the value of high yield
securities and (iii) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. The market for junk bonds may be less
liquid than the market for investment grade bonds. In periods of reduced market
liquidity, junk bond prices may become more volatile and may experience sudden
and substantial price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such conditions, a
Portfolio may find it difficult to value its junk bonds accurately. Under such
conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily on
the judgment of the Fund's Board of Trustees. Prices for junk bonds also may be
affected by legislative and regulatory developments. For example, new federal
rules require that savings and loans gradually reduce their holdings of
high-yield securities. Also, from time to time, Congress has considered
legislation to restrict or eliminate the corporate tax deduction for interest
payments or to regulate corporate restructurings such as takeovers, mergers or
leveraged buyouts. Such legislation, if enacted, may depress the prices of
outstanding junk bonds.
DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities
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<PAGE>
under a dollar roll files for bankruptcy or becomes insolvent, the Portfolio's
use of the proceeds of the transaction may be restricted pending a determination
by the other party, or its trustee or receiver, whether to enforce the
Portfolio's obligation to repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, Mid Cap, Small
Cap and Equity Portfolios may engage in options and futures. Information about
the options and futures transactions these Portfolios may enter into is set
forth below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified security, in
most cases the obligation is fulfilled by closing out the position. All futures
transactions are effected through a clearing house associated with the exchange
on which the contracts are traded. The Global Equity Portfolio may purchase and
sell futures contracts that are currently traded, or may in the future be
traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase, the sum of
initial margin deposits on futures and premiums paid on futures options would
exceed 5% of the Portfolio's total assets. This limitation is not a fundamental
policy.
INFORMATION ON PUTS AND CALLS. The Mid Cap, Small Cap and Equity
Portfolios may write calls on individual securities. The Mid Cap and Global
Equity Portfolios are authorized to write covered put and call options and
purchase put and call options on the securities in which they may invest. When
a portfolio writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually not more than 9 months) at a fixed exercise price (which may differ
from the market price of the underlying securities) regardless of market price
changes during the call period. If the call is exercised, the portfolio forgoes
any possible profit from an increase in market price over the exercise price. A
portfolio may, in the case of listed options, purchase calls in "closing
purchase transactions" to terminate a call obligation. A profit or loss will be
realized, depending upon whether the net of the amount of option transaction
costs and the premium received on the call written is more or less than the
price of the call subsequently purchased. A profit may be realized if the call
lapses unexercised, because the portfolio retains the underlying security and
the premium received. If, due to a lack of a market, a portfolio could not
effect a closing purchase transaction, it would have to hold the callable
securities until the call lapsed or was exercised. The Fund's Custodian, or a
securities depository acting for the Custodian, will act as the portfolio's
escrow agent, through the facilities of the Options Clearing Corporation ("OCC")
in connection with listed calls, as to the securities on which the portfolio
5
<PAGE>
has written calls, or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release the securities
on the expiration of the calls or upon the portfolio's entering into a closing
purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the portfolio will lose its
premium payment and the right to purchase the underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the securities underlying an option it has
written, in accordance with the terms of that option as written, a portfolio
could lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Portfolios will engage in OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the portfolio has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the portfolio assets used to "cover" the OTC option will be
considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the portfolio for writing the option plus
the amount, if any, of the option's intrinsic value, i.e., current market value
of the underlying securities minus the option's strike price.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium received on a put written by a portfolio represents a profit, as
long as the price of the underlying investment remains above the exercise price.
However, a portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, the portfolio may incur a loss upon disposition, equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund, on behalf of a portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at least
the exercise price of the option. As a result, the portfolio forgoes the
opportunity of trading the segregated assets or writing calls against those
assets. As long as the portfolio's obligation as a put writer continues, the
portfolio may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring the portfolio to purchase the underlying
security at the exercise price. A portfolio has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. This obligation terminates upon the earlier of the
expiration of the put, or the consummation by the portfolio of a closing
purchase transaction by purchasing a put
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of the same series as that previously sold. Once a portfolio has been assigned
an exercise notice, it is thereafter not allowed to effect a closing purchase
transaction.
A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
portfolio. The portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its expiration date and
the purchasing portfolio will lose the premium paid and the right to sell the
underlying securities; the put may, however, be sold prior to expiration
(whether or not at a profit). Purchasing a put on futures or securities not
held by it permits a portfolio to protect its securities holdings against a
decline in the market to the extent that the prices of the future or securities
underlying the put move in a similar pattern to the prices of a portfolio's
securities.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a portfolio may cause the portfolio to sell its
securities to cover the call, thus increasing its turnover rate in a manner
beyond the portfolio's control. The exercise of puts on securities or futures
will increase portfolio turnover. Although such exercise is within the
portfolio's control, holding a put might cause a portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Mid Cap, Small Cap and Equity
Portfolios may purchase and write call and put options on futures contracts
which are traded on an exchange and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid) to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the term of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option is accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
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contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Portfolio's losses from existing
options may to some extent be reduced or increased by changes in the value of
its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge the
Portfolio's holdings against the risk of a decline in securities prices.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may be
required to make additional payments during the term of the contract to its
broker. Such payments would be required where during the term of a stock index
futures contract purchased by the Portfolio, the price of the underlying stock
index declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by the
Portfolio resulting in a net long position, an amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's custodian, for the benefit of the
Portfolio, to collateralize the position and thereby insure that the use of such
futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the
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price of the stock index future moves less than the price of the securities
which are the subject of the hedge, the hedge will not be fully effective, but,
if the price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it had not hedged
at all. If the price of the securities being hedged has moved in a favorable
direction this advantage will be partially offset by the future. If the price
of the futures moves more than the price of the stock the Portfolio will
experience a loss or a gain on the future which will not be completely offset by
movement in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index futures, the
Portfolio may buy or sell stock index futures in a greater dollar amount than
the dollar amount of the securities being hedged if the historical volatility of
the prices of such securities has been greater than the historical volatility of
the index. Conversely, the Portfolio may buy or sell fewer stock index futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the stock index. It is
possible that where the Portfolio has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the Portfolio's
securities may decline. If this occurred, the Portfolio would lose money on the
futures and also experience a decline in the value of its securities. While
this should occur, if at all, for a very brief period or to a very small degree,
the Manager believes that over time the value of a diversified portfolio will
tend to move in the same direction as the market indices upon which the futures
are based. It is also possible that if the Portfolio hedges against the
possibility of a decline in the market adversely affecting stocks it holds and
stock prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its stock which it had hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may also have to sell securities at a
time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, the value of stock index futures contracts as a
hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may
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not be possible to close a futures position and in the event of adverse price
movements, the Portfolios would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge a portfolio's securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract. However, as described above, there is no guarantee
that the price of securities will, in fact, correlate with the price movements
in the futures contract and thus provide an offset to losses on a futures
contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. In connection with the 90% test, amendments to the
Internal Revenue Code specify that income from options, futures and other gains
derived from investments in securities is qualifying income under the 90% test.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked to market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section 1256 contracts sold by a
portfolio during the year, and the resulting gain or loss will be deemed to
consist of 60% long-term capital gain or loss and 40%
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short-term capital gain or loss. A portfolio may elect to exclude certain
transactions from the mark-to-market rule although doing so may have the
effect of increasing the relative proportion of short-term capital gain
(taxable as ordinary income) and/or increasing the amount of dividends that
must be distributed annually to meet income distribution requirements,
currently at 98%, to avoid payment of federal excise tax.
It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.
INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Mid Cap, Small Cap and Managed
Portfolios may purchase foreign securities provided that they are listed on a
domestic or foreign securities exchange or represented by American depository
receipts listed on a domestic securities exchange or traded in a domestic or
foreign over-the-counter market. There is no limit on the amount of such
foreign securities that the Portfolios might acquire. These Portfolios will
hold foreign currency in connection with the purchase or sale of securities on a
foreign securities exchange. To the extent that foreign currency is so held,
there may be a risk due to foreign currency exchange rate fluctuations. Such
foreign currency and foreign securities will be held by the Fund's custodian
bank, or by a foreign branch of a U.S. bank, acting as subcustodian, on behalf
of the Portfolio. The custodian bank will hold such foreign securities pursuant
to such arrangements as are permitted by applicable foreign and domestic law and
custom.
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
connection with the exchange of currency. There may be less publicly available
information about a foreign company than about
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a domestic company. Foreign companies are generally not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Most foreign stock markets have substantially
less volume than the New York Stock Exchange and securities of some foreign
companies are less liquid and more volatile than securities of comparable
domestic companies. There is generally less government regulation of foreign
stock exchanges, brokers, and listed companies than there is in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could adversely affect investment
in securities of issuers located in those countries. Individual foreign
economies may differ favorable or unfavorably from the United States economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. If it
should become necessary, the Portfolios would normally encounter greater
difficulties in commencing a lawsuit against the issuer of a foreign security
than it would against a United States issuer.
INVESTMENTS IN EASTERN EUROPE. Investments in Eastern Europe are
speculative and involve a high degree of risk of loss. The emergence of Eastern
European capital markets is in part a function of the policies of the former
Gorbachev administration. With the recent change in power and restructuring of
the Soviet Union there is no assurance that such markets will continue to
constitute a viable investment opportunity for the Portfolios and there may be a
high degree of risk of expropriation without compensation. The governments of a
number of Eastern European countries previously expropriated large quantities of
private property. The claims of many property owners against those governments
were never finally settled. There is no assurance that such expropriation will
not occur again. If such expropriation were to recur, the Portfolios could lose
all or a substantial portion of their investments in such countries. Further,
no accounting standards comparable to those in the U.S. exist in Eastern
European countries. Finally, even though certain Eastern European currencies
may be convertible into United States dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders of
the Portfolios. Presently the Global Equity Portfolio is the only Portfolio
which intends to invest in these types of securities.
The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such countries. These authorities may not be qualified to
act as foreign custodians under the 1940 Act and as a result, the Portfolios
would not be able to invest in the countries in the absence of exemptive relief
from the Securities and Exchange Commission. In addition, the risk of loss
through government confiscation may be increased in such countries.
FOREIGN CURRENCY TRANSACTIONS. The Global Equity, Equity, Mid Cap, Small
Cap and Managed Portfolios do not intend to speculate in foreign currency. When
a Portfolio agrees to purchase or sell a security in a foreign market it will
generally be obligated to pay or entitled to receive a specified amount of
foreign currency and will then generally convert dollars to that currency in the
case of a purchase or that currency to dollars in the case of a sale. The
Global Equity, Mid Cap, Equity, Small Cap and Managed Portfolios intend to
conduct their foreign currency exchange transactions on a spot basis (i.e.,
cash) at the spot rate prevailing in the foreign currency exchange market or
through entering into forward foreign currency contracts ("forward contracts")
to purchase or sell foreign currencies. Such Portfolios may enter into forward
contracts in order to lock in the U.S. dollar amount they must pay or expect to
receive for a security they have agreed to buy or sell or with respect to their
positions when the Portfolios believe that a particular currency may change
unfavorably compared to the U.S. dollar. A forward contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large, commercial banks) and their customers. A forward contract generally has
no deposit requirement, and no commissions are charged at any stage for trades.
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The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating them to purchase, on
the same settlement date, the same amount of foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
futures contracts that are not "regulated futures contracts," and from unlisted
options will be treated as ordinary income or loss under Internal Revenue Code
Section 988. Also, certain foreign exchange gains or losses derived with
respect to fixed-income securities are also subject to Section 988 treatment.
In general, therefore, Internal Revenue Code Section 988 gains or losses will
increase or decrease the amount of the Portfolio's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Portfolio's net capital gain.
Additionally, if Internal Revenue Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Portfolio would not
be able to make any ordinary income distributions.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees or by the trustees' delegate in accordance with such
Rules. The trustees or their delegate will determine that the Portfolios' assets
will be subject to reasonable care, based on standards applicable to custodians
in the relevant market, after considering all factors relevant to the
safekeeping of such assets including but not limited to, the custodian's
practices, procedures and internal controls; the custodian's general reputation;
and whether the Portfolios will have jurisdiction against the custodian.
However, no assurances can be given that the trustees'
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or their delegates' appraisal of the risks in connection with foreign custodial
arrangements will always be correct or that expropriation, nationalization,
freezes (including currency blockage), confiscations or any other loss of assets
that would affect assets of the Portfolio will not occur, and shareholders bear
the risk of losses arising from those or other similar events.
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.
FOREIGN AND DOMESTIC SECURITY SELECTION PROCESS. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets, security selection is
designed to reduce risk through a value oriented approach in which emphasis is
placed on identifying well-managed companies which, in the case of the Global
Equity Portfolio, represent exceptional values in terms of such factors as
assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively, except that these limits do not apply if a portfolio is acquiring
securities of an investment company in the same group of investment companies,
the portfolio only invests in securities of other investment companies that are
part of the same group, government securities and short-term paper; sales or
distribution charges are charged only at one of
14
<PAGE>
the acquired or acquiring investment companies and the acquired company has a
policy restricting it from investing in securities of other investment companies
under these exceptions. To the extent a Portfolio invests in securities in
bearer form it may be more difficult to recover securities in the event such
securities are lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. Under the Taxpayer Relief Act of
1997, a mark-to-market regime was established that allows a regulated investment
company ("RIC") to avoid most, if not all, of the difficulties posed by the
PFIC rules. In any event, it is not anticipated that any taxes on a Portfolio
with respect to investments in PFIC's would be significant.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions applicable to the Portfolios
are described in the Prospectus. The following investment restrictions have
been adopted by the Fund as fundamental policies which cannot be changed without
the vote of a majority of the outstanding voting securities of that Portfolio.
Such a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at the meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio. For the purposes of the following restrictions and those contained
in the Prospectus: (i) all percentage limitations apply immediately after a
purchase or initial investment, unless specifically stated otherwise; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total assets does not require
elimination of any security from the Portfolio.
ADDITIONAL RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS. Each Portfolio of
the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in repurchase agreements; or (c) by
lending its portfolio securities, not in excess of 33% of the value of a
Portfolio's total assets, made in accordance with guidelines adopted by the
Fund's Board of Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
3. Pledge its assets or assign or otherwise encumber them in excess of
10% of its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in the
Prospectus.
4. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
15
<PAGE>
5. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
6. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
7. Engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
8. Invest for the purposes of exercising control or management of another
company.
9. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY. The Money
Market Portfolio may not:
1. Invest in securities other than those listed in the description of its
investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year from the date of
purchase, except that where securities are held subject to repurchase agreements
having a term of one year or less from the date of delivery, the securities
subject to the agreement may have maturity dates in excess of one year from date
of delivery.
3. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities).
RESTRICTIONS APPLICABLE TO THE EQUITY, MID CAP, MANAGED, GLOBAL EQUITY AND
SMALL CAP PORTFOLIOS ONLY. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Mid Cap, Managed, Global Equity and/or
Small Cap Portfolios; however, each Portfolio will attempt to dispose in an
orderly fashion of any securities received under these circumstances to the
extent that such securities, together with other unmarketable securities, exceed
15% of that Portfolio's total assets.
16
<PAGE>
TRUSTEES AND OFFICERS
The trustees and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. The address
of each is One World Financial Center, New York, New York 10281, except as
noted. As of October 31, 1997, the trustees and officers of the Fund as a group
owned none of its outstanding shares.
JOSEPH M. LA MOTTA, CHAIRMAN OF THE BOARD OF TRUSTEES AND PRESIDENT*
Chairman Emeritus of Oppenheimer Capital and Chairman of OpCap Advisors,
registered investment advisers; Chairman of OCC Distributors; Chairman of the
Board and President of OCC Cash Reserves, Inc., an open-end investment company.
PAUL Y. CLINTON, TRUSTEE
39 Blossom Avenue
Osterville, Massachusetts 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, and
OCC Cash Reserves, Inc.; Trustee of OCC Accumulation Trust and Oppenheimer
Quest for Value Funds, each of which is an open-end investment company.
THOMAS W. COURTNEY, C.F.A., TRUSTEE
P. O. Box 8186
Naples, Florida 33941
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund, a private venture capital fund; former
President of Federated Investment Counseling, Inc.; Trustee of Cash Assets
Trust, a money market fund; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term New
York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, OCC Cash
Reserves, Inc., and Trustee of Oppenheimer Quest for Value Funds, each of which
is an open-end investment company; former President of Boston Company
Institutional Investors, Inc.; former Director of The Financial Analysts
Federation; Trustee of Hawaiian Tax-Free Trust and Tax Free Trust of Arizona,
tax-exempt bond funds; and Director of several privately owned corporations.
LACY B. HERRMANN, TRUSTEE
380 Madison Avenue, Suite 2300
New York, New York 10017
President and Chairman of the Board of Aquila Management Corporation (since
1984), the sponsoring organization and Administrator and/or Advisor or
Sub-Advisor to the following open-end investment companies, and Chairman of the
Board of Trustees and President of each: Churchill Cash Reserves Trust (since
1985), Short Term Asset Reserves (from 1984 to 1993), Pacific Capital Cash
Assets Trust (since
17
<PAGE>
1984), Pacific Capital U.S. Treasuries Cash Assets Trust (since 1988), Pacific
Capital Tax-Free Cash Assets Trust (since 1988), Prime Cash Fund (from 1982 -
1996), Oxford Cash Management Fund (1982-1988) and Trinity Liquid Assets Trust
(1982 - 1985), each of which is a money market fund, Churchill Tax-Free Fund of
Kentucky (since 1986), Tax-Free Fund of Colorado (since 1986), Tax-Free Trust of
Oregon (since 1985), Tax-Free Trust of Arizona (since 1985), Tax-Free Fund For
Utah (since 1992) Narragansett Insured Tax-Free Income Fund (since 1992), and
Hawaiian Tax-Free Trust (since 1984), each of which is a tax-free municipal bond
fund, and of Aquila Rocky Mountain Equity Fund (since 1994) and Aquila Cascadia
Equity Fund (since 1996), each of which is a regional equity fund; Vice
President, Director, Secretary, and formerly Treasurer of Aquila Distributors,
Inc. (since 1981), distributor of each of the above funds; President and
Chairman of the Board of Trustees of Capital Cash Management Trust (CCMT), a
money market fund (since 1981) and an Officer and Trustee/Director of its
predecessors (since 1974); President and Director of STCM Management Company,
Inc., sponsor and Subadvisor to CCMT; Director, Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth, OCC
Cash Reserves, Inc., Trustee of Oppenheimer Quest for Value Funds, each of which
is an open-end investment company; Trustee of Brown University since 1990;
actively involved for many years in leadership roles with university, school,
and charitable organizations.
GEORGE LOFT, TRUSTEE
51 Herrick Road
Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Capital Value Fund, Inc., Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Bond Fund for Growth, Oppenheimer Quest Global Value
Fund, Inc., Trustee of Oppenheimer Quest for Value Funds, all of which are open-
end investment companies.
GAVIN ALBERT, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President of Oppenheimer Capital since December 1996 and securities analyst
with Oppenheimer Capital since 1994; management consultant with EDS Energy
Management in 1994; attended Vanderbilt University Business School from
September 1992 to May 1994 (Masters of Business Administration degree in finance
and management).
ROBERT J. BLUESTONE, VICE PRESIDENT
Managing Director, Oppenheimer Capital; Vice President, OCC Cash Reserves, Inc.,
an open-end investment company; Executive Vice President of Municipal Advantage
Fund Inc., a closed-end investment company.
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.
18
<PAGE>
PIERRE DAVIRON, VICE PRESIDENT AND PORTFOLIO MANAGER
President and Chief Investment Officer, Oppenheimer Capital International, a
division of Oppenheimer Capital and a Managing Director of Oppenheimer Capital;
Executive Vice President of The Czech Republic Fund, Inc., a closed-end
investment company. Previously Chairman and Chief Executive Officer at
Indosuez Gartmore Asset Management, a division of Banque Indosuez, Paris,
France. Previously Managing Director in Mergers and Acquisitions at J.P.
Morgan.
BERNARD H. GARIL, VICE PRESIDENT
President and Chief Operating Officer of OpCap Advisors and a Managing Director
of Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc., an open-end
investment company and President of The Czech Republic Fund, Inc. and Municipal
Advantage Fund, Inc., closed-end investment companies.
RICHARD GLASEBROOK, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
JOHN GIUSIO, VICE PRESIDENT
Vice President, Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc.,
an open-end investment company; formerly Vice President, Salomon Brothers.
LOUIS GOLDSTEIN, VICE PRESIDENT AND PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; joined Oppenheimer Capital as a security
analyst in 1991.
ALAN GUTMANN, VICE PRESIDENT AND PORTFOLIO MANAGER
Senior Vice President and Equity Portfolio Manager, Oppenheimer Capital; joined
Oppenheimer Capital in 1991 as a Security Analyst.
BENJAMIN GUTSTEIN, VICE PRESIDENT & PORTFOLIO MANAGER
Assistant Vice President, Oppenheimer Capital since 1996; joined the firm in
1993; prior thereto, associate at Lehman Brothers.
VIKKI HANGES, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; Assistant Vice President, Oppenheimer
Capital, 1987-1992.
DEBORAH KABACK, SECRETARY
Senior Vice President and Deputy General Counsel, Oppenheimer Capital; Secretary
of OCC Cash Reserves, Inc., an open-end investment company and Secretary of The
Czech Republic Fund, Inc. and Municipal Advantage Fund Inc., closed-end
investment companies.
19
<PAGE>
TIMOTHY MCCORMACK, VICE PRESIDENT & PORTFOLIO MANAGER
Vice President, Oppenheimer Capital; formerly Security Analyst at U.S. Trust
Co.; formerly Security Analyst at Gabelli and Company.
RICHARD L. PETEKA, ASSISTANT TREASURER
Vice President, Oppenheimer Capital; Assistant Treasurer of OCC Cash Reserves,
Inc., an open-end investment company and Treasurer of The Czech Republic Fund,
Inc. and Municipal Advantage Fund Inc., closed-end investment companies.
EILEEN ROMINGER, VICE PRESIDENT AND PORTFOLIO MANAGER
Managing Director, Oppenheimer Capital.
SHELDON M. SIEGEL, TREASURER
Managing Director and Treasurer, Oppenheimer Capital; Treasurer of OpCap
Advisors; Treasurer of OCC Cash Reserves, Inc., an open-end investment company.
REMUNERATION OF OFFICERS AND TRUSTEES. All officers of the Fund are
officers of Oppenheimer Capital and will receive no salary or fee from the Fund.
The following table sets forth the aggregate compensation paid by the Fund to
each of the Trustees during its fiscal year ended December 31, 1996 and for the
six months ended June 30, 1997 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 and for the six months ended June 30, 1997. The Managed
Portfolio and the Small Cap Portfolio of the Fund were the only Portfolios of
the Fund that paid fees to the Trustees.
20
<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM THE FUND
NAME OF TRUSTEE COMPENSATION PART OF FUND BENEFITS UPON AND THE FUND
OF THE FUND FROM THE FUND EXPENSES RETIREMENT COMPLEX
<S> <C> <C> <C> <C>
Paul Clinton $7,050 0 0 $71,294.
Thomas Courtney $6,600 0 0 $68,594.
Lacy Herrmann $7,050 0 0 $73,557.
Joseph La Motta 0 0 0 0
George Loft $7,050 0 0 $80,657.
</TABLE>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM THE FUND
NAME OF TRUSTEE COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON AND THE FUND
OF THE FUND FROM THE FUND PART OF FUND EXPENSES RETIREMENT COMPLEX
<S> <C> <C> <C> <C>
Paul Clinton $5,025 0 0 $56,031.
Thomas Courtney $5,025 0 0 $56,031.
Lacy Herrmann $3,975 0 0 $48,921
Joseph La Motta 0 0 0 0
George Loft $5,025 0 0 $56,031.
</TABLE>
For the purpose of the chart above "Fund Complex" includes the Fund, other funds
advised by the Manager and the Oppenheimer Quest Funds for which the Manager
serves as subadvisor.
CONTROL PERSONS
As of January 16, 1998, shares of the Portfolios were held by Oppenheimer
Capital and the Variable Accounts of the following insurance companies, with the
figures beneath each Portfolio representing that company's holdings as a
percentage of each Portfolio's total outstanding shares.
21
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF JANUARY 16, 1998(1)
PORTFOLIOS
- --------------------------------------------------------------------------------
U.S.
SHAREHOLDERS MONEY GOVT. GLOBAL EQUITY SMALL MANAGED MID CAP
MARKET INCOME EQUITY CAP
- --------------------------------------------------------------------------------
The Mutual Life
Insurance 100% 26.54% --- 11.92% 3.86% 12.39% ---
Company of New
York (New York,
NY) & The MONY
Life Insurance
Company of
America
(New York, NY)
- --------------------------------------------------------------------------------
Provident
Mutual Life --- --- --- 82.57% 18.22% 13.39% ---
Insurance
Company
(Philadelphia,
PA) &
Providentmutual
Life and
Annuity Company
of America
(Newark, DE)
- --------------------------------------------------------------------------------
Connecticut
General Life --- --- 97.35% .17% 14.30% 20.08% ---
Insurance
Company & CIGNA
Life Insurance
Company
(Hartford, CT)
- --------------------------------------------------------------------------------
Providian Life
and Health --- 30.51% --- --- 13.18% 5.34% ---
Insurance
Company
(Frazer, PA)
- --------------------------------------------------------------------------------
American
Enterprise Life --- 37.81% --- .26% .09% 1.66% ---
Insurance
Company
(Indianapolis,
IN)
- --------------------------------------------------------------------------------
Oppenheimer
Capital --- 5.14% --- --- --- --- ---
(New York, NY)
- --------------------------------------------------------------------------------
IL Annuity and
Insurance --- --- --- --- 2.25% 2.26% ---
Company
(Indianapolis,
IN)
- --------------------------------------------------------------------------------
PRUCO Life
Insurance --- --- --- --- 45.88% 42.67% ---
Company of New
Jersey and
PRUCO Life
Insurance
Company
(Newark, NJ)
- --------------------------------------------------------------------------------
22
<PAGE>
PORTFOLIOS
- --------------------------------------------------------------------------------
U.S.
SHAREHOLDERS MONEY GOVT. GLOBAL EQUITY SMALL MANAGED MID CAP
MARKET INCOME EQUITY CAP
- --------------------------------------------------------------------------------
ReliaStar Life --- --- 2.65% 5.08% 2.22% 2.21% ---
Insurance
Company
(Minneapolis,
MN)
- --------------------------------------------------------------------------------
- --Company does not offer share of the Portfolio of the Fund.
(1) This chart lists all Variable Account shareholders of record of the
Portfolios, who, as of January 16, 1998, held five percent or more of the
shares of the Portfolios of the Fund and all holdings of shares of the
Portfolios by Oppenheimer Capital, the parent of the Manager. To the best
knowledge of the Fund, no Contractowner held units equivalent to 5% or more
of the shares of any Portfolio of the Fund as of January 16, 1998.
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
23
<PAGE>
Initial Advisory Agreement also provides that the Manager will limit total
operating expenses of the Portfolios of the Fund to 1.25% (net of any expense
offsets) of their respective average daily net assets.
On February 28, 1997, the Board of Trustees including a majority of the
Trustees who are not "interested persons" of the Fund, approved a new Advisory
Agreement (the "Advisory Agreement"), on identical terms as the initial Advisory
Agreement, as amended, to take effect upon the acquisition by PIMCO Advisors
L.P. and its affiliates (the "PIMCO Partners") of a controlling interest in
Oppenheimer Capital and its subsidiary OpCap Advisors, the Manager of the Fund
(the "Transaction"). The Advisory Agreement was approved by the shareholders
of each Portfolio of the Fund at a Special Meeting of Shareholders held on
October 14, 1997. The Transaction was consummated on November 4, 1997 and the
new Advisory Agreement became effective on November 5, 1997.
Under the Advisory Agreement, the Manager is required to: (i) regularly
provide investment advice and recommendations to each Portfolio of the Fund with
respect to its investments, investment policies and the purchase and sale of
securities; (ii) supervise continuously and determine the securities to be
purchased or sold by the Fund and the portion, if any, of the assets of each
Portfolio of the Fund to be held uninvested; and (iii) arrange for the purchase
of securities and other investments by each Portfolio of the Fund and the sale
of securities and other investments held by each Portfolio of the Fund.
The Advisory Agreement also requires the Manager to provide administrative
services for the Fund, including (1) coordination of the functions of
accountants, counsel and other parties performing services for the Fund and (2)
preparation and filing of reports required by federal securities and "blue sky"
laws, shareholder reports and proxy materials.
Expenses not expressly assumed by the Manager under the Advisory Agreement
or by OCC Distributors (the "Distributor") are paid by the Fund. The Advisory
Agreement lists examples of expenses paid by the Fund, of which the major
categories relate to interest, taxes, fees to non-interested trustees, legal and
audit expenses, custodian and transfer agent expenses, stock issuance costs,
certain printing and registration costs, and non-recurring expenses, including
litigation.
For the period September 16, 1994 (commencement of operations) to December
31, 1994, the Manager waived its fee of $6,957, $14,599 and $4,105 for the
Equity, Small Cap and Money Market Portfolios, respectively. In addition, the
Manager reimbursed operating expenses of $9,647, $7,395 and $6,449,
respectively, to such Portfolios. For the period September 16, 1994
(commencement of operations) to December 31, 1994, the total management fee
accrued or paid on the Managed Portfolio was $92,564; the total management fee
waived was $46,152. For the fiscal year ended December 31, 1995, the total
advisory fees accrued or paid by the Equity, Managed, Small Cap and Money Market
Portfolios were $38,504, $447,678, $72,770 and $16,447, respectively, of which,
$34,745, $55,036, $30,075 and $5,702, respectively, was waived by the Manager.
For the fiscal year ended December 31, 1995, the Manager waived its fee of
$9,022 and $4,873 for the Global Equity and U.S. Government Income Portfolios,
respectively. In addition, the Manager reimbursed operating expenses of
$23,340, $692 and $27,434, respectively, to such Portfolios. For the fiscal
year ended December 31, 1996, the total advisory fees accrued or paid by the
Equity, Managed, Small Cap, Money Market, U.S. Government Income and Global
Equity Portfolios were $109,057, $972,381, $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,
24
<PAGE>
the Manager reimbursed operating expenses of $19,305 for the U.S. Government
Income Portfolio. For the six month period ended June 30, 1997, the total
advisory fees accrued or paid by the Equity, Managed, Small Cap, Money Market,
U.S. Government Income and Global Equity Portfolios was $86,822,
$888,578,$172,578, $9,477, $14,993, and $79,334 of which $3,439, $13,132, and
$2,537 was waived by the Manager with respect to the Money Market Portfolio, the
U.S. Government Income Portfolio, and the Global Equity Portfolio, respectively.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Manager is not liable for any act or omission in the course of,
or in connection with, the rendition of services thereunder. The Agreement
permits the Manager to act as investment advisor for any other person, firm, or
corporation.
PORTFOLIO TRANSACTIONS. Portfolio decisions are based upon recommendations
of the Manager and the judgment of the portfolio managers. As most, if not all,
purchases made by the U.S. Government Income and Money Market Portfolios will be
principal transactions at net prices, those Portfolios pay no brokerage
commissions; however prices of debt obligations reflect mark-ups and mark-downs
which constitute compensation to the executing dealer. The Portfolios will pay
brokerage commissions on transactions in listed options and equity securities.
Prices of securities purchased from underwriters of new issues include a
commission or concession paid by the issuer to the underwriter, and prices of
debt securities purchased from dealers include a spread between the bid and
asked prices. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers during the course
of an underwriting in return for their brokerage and research services, which
are intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to the
Fund and/or other accounts of the Manager; information received in connection
with directed orders of other accounts managed by the Manager or its affiliates
may or may not be useful to the Fund. Such information may be in written or
oral form and includes information on particular companies and industries as
well as market, economic or institutional activity areas. It serves to broaden
the scope and supplement the research activities of the Manager, to make
available additional views for consideration and comparison, and to enable the
Manager to obtain market information for the valuation of securities held by the
Fund. For the year ended December 31, 1996, the aggregate dollar amount
involved in such transactions was $1,378,195, with related commissions of
$1,861; for the six month period ended June 30, 1997, the aggregate dollar
amount involved in such transactions was $5,305,312 with related commissions
of $10,735.
Sales of shares of the Fund, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to brokers and dealers, but only in
conformity with the price, execution and other considerations and practices
discussed above. The Fund may execute brokerage transactions through CIBC
Oppenheimer Corp, Inc. ("CIBC Oppenheimer"), which prior to the consummation of
the acquisition by the PIMCO Partners of a controlling interest in Oppenheimer
Capital and OpCap Advisors was an affiliated broker-dealer.
The following table presents information as to the allocation of brokerage
commissions paid to CIBC Oppenheimer 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, for the
year ended December 31, 1996 and for the six month period ended June 30, 1997.
25
<PAGE>
TOTAL BROKERAGE
PORTFOLIO COMMISSIONS PAID
- ------------------------------------------------------------------
SIX MONTHS
1994 1995 1996 ENDED 6/30/97
- ------------------------------------------------------------------
EQUITY $1,293 $6,942 $14,116 $4,820
- ------------------------------------------------------------------
MANAGED 10,865 65,136 107,123 64,187
- ------------------------------------------------------------------
SMALL CAP 10,897 35,395 52,990 80,508
- ------------------------------------------------------------------
GLOBAL EQUITY -- 11,614 41,242 21,497
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
PORTFOLIO PAID TO CIBC OPPENHEIMER
- ---------------------------------------------------------------------------------------------------------------------------
$ AMOUNTS %
- ---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS
1994 1995 1996 ENDED 6/30/97 1994 1995 1996 ENDED 6/30/97
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EQUITY $912 $3,800 $5,743 $1,518 70.5 55.0 40.7 31.5%
- ---------------------------------------------------------------------------------------------------------------------------
MANAGED 7,415 26,544 61,183 24,908 68.2 41.0 57.1 38.8%
- ---------------------------------------------------------------------------------------------------------------------------
SMALL CAP 4,191 12,805 23,565 20,686 38.5 36.0 44.5 25.7%
- ---------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY -- 490 4,563 880 -- 4.0 11.1 4.1%
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO TOTAL AMOUNT OF TRANSACTIONS
WHERE BROKERAGE COMMISSIONS PAID TO CIBC OPPENHEIMER
- ---------------------------------------------------------------------------------------------------------------------------
$ AMOUNTS %
- ---------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 SIX MONTHS 1994 1995 1996 SIX MONTHS
ENDED 6/30/97 ENDED 6/30/97
- ---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
EQUITY $647,308 $2,513,857 $5,747,719 $1,239,391 73.20 51.3 50.5 37.5%
- ---------------------------------------------------------------------------------------------------------------------------
MANAGED 5,133,805 19,748,754 50,188,690 23,298,894 66.60 47.1 59.0 41.1%
- ---------------------------------------------------------------------------------------------------------------------------
SMALL CAP 1,305,205 3,948,081 8,870,059 9,141,507 30.14 32.3 45.4 27.8%
- ---------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY -- 450,584 4,995,531 1,049,967 ---- 16.0 33.6 13.7%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund did not effect principal transactions with CIBC Oppenheimer while
it was an affiliated broker-dealer. When the Fund effects principal
transactions with other broker-dealers commissions are imputed.
The Manager currently serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Manager to cause
purchase or sale transactions to be allocated among the Fund and others whose
assets it manages in such manner as it deems equitable. In making such
allocations among the Fund and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and the
opinions of the persons responsible for managing each portfolio of the Fund and
other client accounts. When orders to purchase or sell the same security on
identical terms are placed by more than one of the funds and/or other advisory
accounts managed by the Manager or its affiliates, the transactions are
generally executed as received, although a fund or advisory account that does
not direct trades to a specific broker ("free trades") usually will have its
order executed first. Purchases are
26
<PAGE>
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 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
27
<PAGE>
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 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
28
<PAGE>
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 record as of the close of business the
preceding business day. Net income, for dividend purposes, includes accrued
interest and accretion of original issue and market discount, less the
amortization of market premium and less estimated expenses of the Money Market
Portfolio. Net income will be calculated immediately prior to the determination
of net asset value per share of the Money Market Portfolio (see "Determination
of Net Asset Value" above and in the Prospectus). The Board of Trustees may
revise the above dividend policy or postpone the payment of dividends if the
Money Market Portfolio should have or anticipates any large unexpected expense,
loss or fluctuation in net assets which in the opinion of the Board of Trustees
might have a significant adverse effect on shareholders. Any net realized
capital gains will be declared and paid at least once per calendar year.
OTHER PORTFOLIOS. The dividend policies of the U.S. Government Income,
Equity, Mid Cap, Global Equity, Managed and Small Cap Portfolios are discussed
in the Prospectus. In computing interest income, these Portfolios will accrete
any discount or amortize any premium resulting from the purchase of debt
securities except for mortgage or other receivables-backed obligations subject
to monthly payment of principal and interest.
CAPITAL GAINS AND LOSSES. Gains or losses on the sales of securities by
the Fund will be long-term capital gains or losses if the securities have been
held by the Fund for more than twelve months, regardless of how long you have
held your shares. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses. At December 31,
1996, the Small Cap Portfolio will utilize $87,890 of prior year post October
losses. Additionally, at December 31, 1996, the Money Market Portfolio incurred
net realized capital losses of $14 which will expire in 2004 and the U.S.
Government Income Portfolio incurred net realized capital losses of $6,203 which
will expire in 2004. To the extent that net capital losses are carried forward
and are used to offset future capital gains, it is probable that the gains so
offset will not be distributed to shareholders.
PORTFOLIO YIELD AND TOTAL RETURN INFORMATION
The performance information shown below reflects deductions for all
charges, expenses and fees of the Fund but does not reflect charges and
deductions which are, or may be, imposed under the Contracts.
MONEY MARKET PORTFOLIO. There are two methods by which the Money Market
Portfolio's yield for a specified period of time (as stated in the Prospectus)
is calculated.
29
<PAGE>
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 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 JUNE 30, 1997 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
CURRENT EFFECTIVE
MONEY MARKET PORTFOLIO 4.72% 4.83%
30
<PAGE>
YIELDS FOR PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. Yield information
may be useful to investors in reviewing the performance of certain Portfolios.
However, a number of factors should be considered before using yield information
as a basis for comparison with other investments. An investment in the Fund is
not insured; yield is not guaranteed and normally will fluctuate on a daily
basis. The yield for any given past period is not an indication or
representation of future yields or rates of return. Yield is affected by
portfolio quality, portfolio maturity, type of instruments held and operating
expenses. When comparing a Portfolio's yield with that of other investments,
investors should understand that certain other investment alternatives such as
money-market instruments or bank accounts provide fixed yields and also that
bank accounts may be insured.
YIELD FOR 30-DAY PERIOD ENDED JUNE 30, 1997 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD(1)
U.S. GOVERNMENT INCOME PORTFOLIO 5.66%
(1)Reflects the waiver of a portion of advisory fees by the Manager. Had the
waiver not been in effect during the period, the yield would have been 5.09% 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
31
<PAGE>
which will result in the ending redeemable value ("ERV" in the formula below) of
a $1,000 investment, ("P" in the formula below) made at the beginning of a one,
five or ten year period, or for the period from the date of commencement of the
Portfolio's operation, if shorter ("N" in the formula below). The following
formula will be used to compute the average annual total return for each
Portfolio (other than the Money Market Portfolio):
N
P (1 + T) = ERV
In addition to the foregoing, each Portfolio may advertise its total return
over different periods of time by means of aggregate, average, year by year or
other types of total return figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
In addition to average annual returns, each Portfolio may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments and/or a series of redemptions over
any time period. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indices including but not limited to the
S&P Composite Stock Price Index, S&P Mid Cap Index, the Wilshire 750 Mid Cap
Index, the Russell Mid Cap Index, Dow Jones Industrial Average, Consumer Price
Index, EAFE Index, Russell 2000 Index, the Morgan Stanley Capital International
(MSCI) All Country World Index
and the Lehman Brothers US Government Bond 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.
32
<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MANAGED, MID CAP, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS OF OCC ACCUMULATION TRUST(1),(2)
FOR THE ONE YEAR FOR THE FIVE YEAR FOR THE PERIOD
PERIOD ENDED PERIOD ENDED FROM INCEPTION TO
PORTFOLIO JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997
- --------- ---------------- ----------------- -----------------
EQUITY 26.63% 19.88% 17.21%
MID CAP N/A N/A N/A
MANAGED 28.54% 20.99% 20.63%
SMALL CAP 25.46% 15.96% 15.56%
U.S. GOVERNMENT INCOME 5.53% N/A 7.27%
GLOBAL EQUITY 21.78% N/A 20.93%
* 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
other
33
<PAGE>
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.
34
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - 1.6%
$ 320,000 Federal Home Loan Bank, 5.19%, 1/9/97(cost-$319,631).................. $ 319,631
----------
SHORT-TERM CORPORATE NOTES - 12.9%
AUTOMOTIVE - 4.5%
$ 900,000 Ford Motor Credit Co., 5.40%, 1/28/97................................. $ 896,355
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.6%
470,000 Household Finance Corp., 5.34%, 1/7/97................................ 469,582
640,000 Prudential Funding Corp., 5.62%, 1/8/97............................... 639,301
----------
1,108,883
----------
TECHNOLOGY - 2.8%
IBM Credit Corp.,
155,000 5.22%, 1/7/97......................................................... 154,865
290,000 5.32%, 1/7/97......................................................... 289,743
118,000 5.46%, 1/7/97......................................................... 117,892
----------
562,500
----------
Total Short-Term Corporate Notes (cost-$2,567,738).................... $ 2,567,738
----------
<CAPTION>
SHARES
------
<C> <S> <C>
COMMON STOCKS - 87.5%
AEROSPACE/DEFENSE - 4.7%
5,000 Lockheed Martin Corp. ................................................ $457,500
7,494 McDonnell Douglas Corp................................................ 479,616
----------
937,116
----------
BANKING - 7.5%
6,556 Citicorp.............................................................. 675,268
3,033 Wells Fargo & Co. .................................................... 818,152
----------
1,493,420
----------
CHEMICALS - 3.6%
2,000 du Pont (E.I.) de Nemours & Co. ...................................... 188,750
7,698 Hercules, Inc. ....................................................... 332,939
4,910 Monsanto Co. ......................................................... 190,876
----------
712,565
----------
CONGLOMERATES - 2.8%
2,156 General Electric Co. ................................................. 213,174
7,500 Tenneco, Inc.*........................................................ 338,437
----------
551,611
----------
</TABLE>
A-1
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS - 2.1%
3,844 Avon Products, Inc.................................................... $ 219,589
6,843 Mattel, Inc. ......................................................... 189,893
----------
409,482
----------
DRUGS & MEDICAL PRODUCTS - 3.1%
14,042 Becton, Dickinson & Co. .............................................. 609,072
----------
ELECTRONICS - 2.7%
7,038 Arrow Electronics, Inc.*.............................................. 376,533
5,000 Electronic Arts, Inc.*................................................ 149,687
----------
526,220
----------
ENERGY - 1.4%
698 El Paso Natural Gas Co. .............................................. 35,224
4,996 Triton Energy Ltd.*................................................... 242,306
----------
277,530
----------
ENTERTAINMENT - .1%
1,700 TCI Satellite Entertainment, Inc.*.................................... 16,787
----------
FOOD SERVICES - 2.4%
10,500 McDonald's Corp. ..................................................... 475,125
----------
HEALTH & HOSPITALS - 4.8%
12,000 Columbia/HCA Healthcare Corp. ........................................ 489,000
5,000 OrNda HealthCorp.*.................................................... 146,250
14,000 Tenet Healthcare Corp.*............................................... 306,250
----------
941,500
----------
INSURANCE - 23.2%
15,700 ACE Ltd. ............................................................. 943,963
7,372 AFLAC, Inc. .......................................................... 315,153
3,262 American International Group, Inc. ................................... 353,112
17,000 Everest Reinsurance Holdings, Inc. ................................... 488,750
24,452 EXEL Ltd. ............................................................ 926,119
2,000 General Re Corp. ..................................................... 315,500
10,000 Mid Ocean Ltd. ....................................................... 525,000
4,579 Progressive Corp. (Ohio).............................................. 308,510
13,000 RenaissanceRe Holdings Ltd. .......................................... 429,000
----------
4,605,107
----------
LEISURE - 2.3%
14,000 Carnival Corp. ....................................................... 462,000
----------
</TABLE>
A-2
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MACHINERY/ENGINEERING - 3.4%
9,000 Caterpillar, Inc. .................................................... $ 677,250
----------
MANUFACTURING - 4.9%
3,000 Armstrong World Industries, Inc. ..................................... 208,500
17,560 LucasVarity Corp. PLC ADR*............................................ 667,280
8,000 Shaw Industries, Inc. ................................................ 94,000
----------
969,780
----------
METALS & MINING - .3%
2,145 Freeport McMoRan Copper & Gold (Class B).............................. 64,082
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.7%
19,912 Countrywide Credit Industries, Inc. .................................. 569,981
5,155 Federal Home Loan Mortgage Corp. ..................................... 567,694
----------
1,137,675
----------
PRINTING/PUBLISHING - 1.7%
11,000 Donnelley (R.R.) & Sons Co. .......................................... 345,125
----------
RETAIL - 2.6%
10,888 May Department Stores Co. ............................................ 509,014
----------
TELECOMMUNICATIONS - 2.9%
6,000 Sprint Corp. ......................................................... 239,250
25,000 Tele-Communications, Inc. (Class A)*.................................. 326,563
----------
565,813
----------
TRANSPORTATION - 5.3%
4,300 AMR Corp.*............................................................ 378,938
13,000 Canadian Pacific Ltd. ................................................ 344,500
8,000 CSX Corp. ............................................................ 338,000
----------
1,061,438
----------
Total Common Stocks (cost - $13,605,569).............................. $17,347,712
----------
Total Investments (cost - $16,492,938)...................... 102.0% $20,235,081
Other Liabilities in Excess of Other Assets................. (2.0) (392,083)
----- -----------
Total Net Assets............................................ 100.0% $19,842,998
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-3
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $16,492,938)...................................... $20,235,081
Cash............................................................................ 114,721
Dividends receivable............................................................ 17,264
Receivable from fund shares sold................................................ 10,703
Other assets.................................................................... 883
-----------
Total Assets.................................................................. 20,378,652
-----------
LIABILITIES
Payable for investments purchased............................................... 494,608
Investment advisory fee payable................................................. 18,017
Payable for fund shares redeemed................................................ 6,182
Other payables and accrued expenses............................................. 16,847
-----------
Total Liabilities............................................................. 535,654
-----------
Total Net Assets.............................................................. $19,842,998
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 6,598
Paid-in-capital in excess of par................................................ 15,232,928
Accumulated undistributed net investment income................................. 188,895
Accumulated undistributed net realized gain on investments...................... 672,434
Net unrealized appreciation on investments...................................... 3,742,143
-----------
Total Net Assets.............................................................. $19,842,998
===========
Fund shares outstanding......................................................... 659,810
-----------
Net asset value per share....................................................... $ 30.07
===========
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 185,285
Interest....................................................................... 137,420
----------
Total investment income..................................................... 322,705
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 109,507
Custodian fees (note 1G)....................................................... 16,342
Auditing, consulting and tax return preparation fees........................... 10,185
Transfer and dividend disbursing agent fees.................................... 9,252
Reports and notices to shareholders............................................ 3,011
Legal fees..................................................................... 2,206
Miscellaneous.................................................................. 4,221
----------
Total operating expenses.................................................... 154,724
Less: Investment advisory fees waived (note 2A)............................. (18,150)
Less: Expense offset arrangement (note 1G).................................. (2,764)
----------
Net operating expenses................................................. 133,810
----------
Net investment income.................................................. 188,895
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 672,433
Net change in unrealized appreciation (depreciation) on investments............ 2,218,378
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 2,890,811
----------
Net increase in net assets resulting from operations............................. $3,079,706
==========
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 188,895 $ 111,781
Net realized gain on investments........................... 672,433 233,302
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,218,378 1,628,793
----------- ----------
Net increase in net assets resulting from operations..... 3,079,706 1,973,876
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (111,781) (20,888)
Net realized gains......................................... (223,969) --
----------- ----------
Total dividends and distributions to shareholders........ (335,750) (20,888)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 9,184,397 3,630,236
Reinvestment of dividends and distributions................ 335,750 20,888
Cost of shares redeemed.................................... (1,457,087) (849,386)
----------- ----------
Net increase in net assets from fund share
transactions.......................................... 8,063,060 2,801,738
----------- ----------
Total increase in net assets.......................... 10,807,016 4,754,726
NET ASSETS
Beginning of year.......................................... 9,035,982 4,281,256
----------- ----------
End of year (including undistributed net investment income
of $188,895 and $111,781, respectively).................. $19,842,998 $ 9,035,982
=========== ==========
SHARES ISSUED AND REDEEMED
Issued..................................................... 339,540 161,702
Issued in reinvestment of dividends and distributions...... 13,029 1,074
Redeemed................................................... (53,448) (38,368)
----------- ----------
Net increase............................................. 299,121 124,408
=========== ==========
</TABLE>
See accompanying notes to financial statements.
A-6
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity Portfolio
(the "Portfolio"), the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions
A-7
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
which exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains, respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-capital or tax return of capital. At December 31, 1996,
the Portfolio did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $14,116, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $5,743.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $11,763,936 and $4,337,943,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,901,280, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $159,137 and net unrealized appreciation for Federal income tax purpose is
$3,742,143. Federal income tax cost basis of portfolio securities is $16,492,938
at December 31, 1996.
A-8
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-9
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 25.05 $ 18.12 $ 18.57
-------- ------- -------
Income from investment operations:
Net investment income................... 0.21 0.31 0.09
Net realized and unrealized gain (loss)
on investments........................ 5.52 6.71 (0.54)
-------- ------- -------
Total from investment operations...... 5.73 7.02 (0.45)
-------- ------- -------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.24) (0.09) --
Distributions to shareholders from net
realized capital gains................ (0.47) -- --
-------- ------- -------
Total dividends and distributions to
shareholders....................... (0.71) (0.09) --
-------- ------- -------
Net asset value, end of period.......... $ 30.07 $ 25.05 $ 18.12
======== ======= =======
Total return(2)......................... 23.4% 38.9% (2.4%)
======== ======= =======
Net assets, end of period............... $19,842,998 $ 9,035,982 $ 4,281,256
-------- ------- -------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.72% 0.72%(3)
-------- ------- -------
Ratio of net investment income to
average net assets(6)................. 1.29%(4) 1.74% 1.80%(3)
-------- ------- -------
Portfolio turnover rate................. 36% 31% 6%
-------- ------- -------
Average commission rate................. $ 0.0588 -- --
-------- ------- -------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $14,669,645.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.05% and
1.15%, respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Equity Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-11
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - .7%
$ 230,000 Federal Home Loan Mortgage Corp., 5.23%, 1/2/97 (cost - $229,967).... $ 229,967
-----------
SHORT-TERM CORPORATE NOTES - 16.8%
AUTOMOTIVE - 2.5%
Ford Motor Credit Co.,
$ 345,000 5.40%, 1/28/97....................................................... $ 343,603
500,000 5.62%, 1/2/97........................................................ 499,922
-----------
843,525
-----------
BANKING - 1.9%
670,000 Norwest Financial, Inc., 5.51%, 1/22/97.............................. 667,846
-----------
CONGLOMERATES - 3.7%
1,275,000 General Electric Capital Corp., 5.35%, 1/30/97....................... 1,269,505
-----------
MACHINERY/ENGINEERING - 3.5%
1,210,000 Deere (John) Capital Corp., 5.38%, 1/22/97........................... 1,206,203
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.5%
500,000 Beneficial Corp., 5.52%, 1/28/97..................................... 497,930
-----------
TECHNOLOGY - 3.7%
IBM Credit Corp.,
370,000 5.31%, 1/6/97........................................................ 369,727
900,000 5.32%, 1/6/97........................................................ 899,335
-----------
1,269,062
-----------
Total Short-Term Corporate Notes (cost - $5,754,071)................. $ 5,754,071
-----------
CORPORATE NOTE - .1%
AUTOMOTIVE - .1%
$ 2,148 Collins Industries, Inc., 8.75%, 1/11/00 (cost - $2,148)............. $ 1,995
-----------
CONVERTIBLE CORPORATE BOND - .1%
REAL ESTATE - .1%
$ 49,995 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $45,364)..................................................... $ 60,481
-----------
<CAPTION>
SHARES
------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .2%
TRANSPORTATION - .2%
825 Interpool, Inc., 5.75%, Conv. Pfd. (cost - $62,700).................. $ 84,150
-----------
COMMON STOCKS - 82.2%
ADVERTISING - 2.4%
71,900 Katz Media Group, Inc.*.............................................. $ 808,875
-----------
AEROSPACE/DEFENSE - 1.2%
19,000 Tracor, Inc.*........................................................ 403,750
-----------
</TABLE>
A-12
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
AUTOMOTIVE - 2.5%
14,400 Borg-Warner Automotive, Inc.......................................... $ 554,400
45,000 Jason, Inc.*......................................................... 292,500
-----------
846,900
-----------
BANKING - .5%
6,800 First Financial Caribbean Corp. ..................................... 188,700
-----------
BUILDING & CONSTRUCTION - 1.0%
16,400 Dal-Tile International, Inc.*........................................ 334,150
-----------
CHEMICALS - 1.1%
10,500 McWhorter Technologies, Inc.*........................................ 240,187
9,800 Sybron Chemicals, Inc.*.............................................. 156,800
-----------
396,987
-----------
COMPUTER SERVICES - 3.8%
63,867 BancTec, Inc.*....................................................... 1,317,257
-----------
DRUGS & MEDICAL PRODUCTS - 5.9%
5,000 Dentsply International, Inc. ........................................ 237,500
62,800 SpaceLabs Medical, Inc.*............................................. 1,287,400
19,700 Vital Signs, Inc. ................................................... 512,200
-----------
2,037,100
-----------
ELECTRICAL EQUIPMENT - 10.6%
9,200 Arrow Electronics, Inc.*............................................. 492,200
5,300 AVX Corp. ........................................................... 113,950
56,800 EG & G, Inc. ........................................................ 1,143,100
43,000 Exar Corp.*.......................................................... 666,500
19,100 Marshall Industries*................................................. 584,937
27,720 Oak Industries, Inc.*................................................ 637,560
-----------
3,638,247
-----------
ENERGY - 5.1%
17,948 Aquila Gas Pipeline Corp. ........................................... 284,924
3,300 Belden & Blake Corp.*................................................ 84,150
10,000 Nuevo Energy Co.*.................................................... 520,000
21,300 Petroleum Heat & Power Company, Inc. (Class A)....................... 135,788
9,640 Seagull Energy Corp.*................................................ 212,080
12,500 St. Mary Land & Exploration Co. ..................................... 310,938
4,000 Triton Energy Ltd.*.................................................. 194,000
-----------
1,741,880
-----------
</TABLE>
A-13
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH & HOSPITALS - 5.0%
65,200 Magellan Health Services, Inc*....................................... $ 1,458,850
14,800 Summit Care Corp.*................................................... 242,350
-----------
1,701,200
-----------
INSURANCE - 14.4%
9,400 ACE Ltd. ............................................................ 565,175
38,100 Capsure Holdings Corp.*.............................................. 433,388
20,600 Delphi Financial Group, Inc. ........................................ 607,700
10,900 Everest Reinsurance Holdings, Inc. .................................. 313,375
50,300 E.W. Blanch Holdings, Inc. .......................................... 1,012,287
17,200 Gryphon Holdings, Inc. .............................................. 242,950
17,000 Horace Mann Educators Corp. ......................................... 686,375
7,100 Protective Life Corp. ............................................... 283,112
18,200 United Wisconsin Services, Inc. ..................................... 477,750
6,000 W.R. Berkley Corp. .................................................. 304,500
-----------
4,926,612
-----------
MACHINERY/ENGINEERING - 2.1%
30,200 United Dominion Industries, Ltd. .................................... 709,700
-----------
MANUFACTURING - 8.0%
13,600 Alltrista Corp.*..................................................... 350,200
139,200 Baldwin Technology Co. (Class A)*.................................... 348,000
6,500 Briggs & Stratton Corp. ............................................. 286,000
4,500 Carlisle Companies, Inc. ............................................ 272,250
15,750 Crane Co. ........................................................... 456,750
59,500 Easco, Inc. ......................................................... 453,687
31,200 Exabyte Corp.*....................................................... 417,300
5,200 Greenfield Industries, Inc. ......................................... 159,250
-----------
2,743,437
-----------
MEDIA/BROADCASTING - .6%
7,500 American Radio Systems Corp.*........................................ 204,375
-----------
PAPER PRODUCTS - 2.4%
143,800 Repap Enterprises, Inc.*............................................. 399,944
21,000 Shorewood Packaging Corp.*........................................... 409,500
-----------
809,444
-----------
PRINTING & PUBLISHING - 2.9%
15,300 International Imaging Materials, Inc.*............................... 348,075
63,400 Nu-Kote Holdings, Inc. (Class A)*.................................... 649,850
-----------
997,925
-----------
</TABLE>
A-14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE - 3.6%
15,291 Cousins Properties, Inc. ............................................ $ 430,059
66 Security Capital Group, Inc. (A)..................................... 82,156
20,200 Security Capital Industrial Trust, Inc. ............................. 431,775
12,752 Security Capital Pacific Trust....................................... 291,702
-----------
1,235,692
-----------
RETAIL - .4%
8,500 Maxim Group, Inc.*................................................... 148,750
-----------
TECHNOLOGY - 4.1%
11,000 Channell Commercial Corp.*........................................... 136,125
8,000 Unitrode Corp.*...................................................... 235,000
51,400 Wang Laboratories, Inc.*............................................. 1,040,850
-----------
1,411,975
-----------
TELECOMMUNICATIONS - .6%
10,100 ECI Telecom Ltd. .................................................... 214,625
-----------
TEXTILES/APPAREL - 1.7%
19,000 Westpoint Stevens, Inc. (Class A)*................................... 567,625
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
6,000 Sylvan Foods Holdings, Inc.*......................................... 78,000
-----------
TRANSPORTATION - 1.6%
12,200 Interpool, Inc....................................................... 285,175
13,100 MTL, Inc.*........................................................... 265,275
-----------
550,450
-----------
OTHER - .5%
6,150 McGrath RentCorp..................................................... 158,363
-----------
Total Common Stocks (cost - $24,953,214)............................. $28,172,019
-----------
Total Investments (cost - $31,047,464)....................... 100.1% $34,302,683
Other Liabilities in Excess of other assets.................. (0.1) (46,012)
----- -----------
Total Net Assets............................................. 100.0% $34,256,671
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
(A) Restricted securities (the Portfolio will not bear any costs, including
those involved in registration under the securities act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14....... 9/16/94 $49,995 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock.......... 9/16/94 -- 66 949 1,245
</TABLE>
See accompanying notes to financial statements.
A-15
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $31,047,464)...................................... $34,302,683
Cash............................................................................ 8,758
Dividends receivable............................................................ 8,504
Interest receivable............................................................. 6,304
Receivable from fund shares sold................................................ 1,397
Other assets.................................................................... 1,207
-----------
Total Assets.................................................................. 34,328,853
-----------
LIABILITIES
Payable for fund shares redeemed................................................ 27,274
Investment advisory fee payable................................................. 23,648
Other payables and accrued expenses............................................. 21,260
-----------
Total Liabilities............................................................. 72,182
-----------
Total Net Assets.............................................................. $34,256,671
===========
NET ASSETS
Par value ($.01 per share)...................................................... $ 15,153
Paid-in-capital in excess of par................................................ 29,167,853
Accumulated undistributed net investment income................................. 226,925
Accumulated undistributed net realized gain on investments...................... 1,591,521
Net unrealized appreciation on investments...................................... 3,255,219
-----------
Total Net Assets.............................................................. $34,256,671
===========
Fund shares outstanding......................................................... 1,515,250
-----------
Net asset value per share....................................................... $ 22.61
===========
</TABLE>
See accompanying notes to financial statements.
A-16
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 227,354
Interest....................................................................... 199,837
----------
Total investment income..................................................... 427,191
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 165,735
Custodian fees (note 1G)....................................................... 22,883
Auditing, consulting and tax return preparation fees........................... 10,309
Transfer and dividend disbursing agent fees.................................... 9,357
Trustees' fees and expenses.................................................... 5,702
Reports and notices to shareholders............................................ 3,914
Legal fees..................................................................... 3,048
Miscellaneous.................................................................. 1,770
----------
Total operating expenses.................................................... 222,718
Less: Investment advisory fees waived (note 2A)............................. (17,823)
Less: Expense offset arrangement (note 1G).................................. (4,629)
----------
Net operating expenses................................................. 200,266
----------
Net investment income.................................................. 226,925
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Net realized gain on investments............................................... 1,679,412
Net change in unrealized appreciation (depreciation) on investments............ 2,142,715
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 3,822,127
----------
Net increase in net assets resulting from operations............................. $4,049,052
==========
</TABLE>
See accompanying notes to financial statements.
A-17
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 226,925 $ 211,870
Net realized gain on investments........................... 1,679,412 456,809
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,142,715 1,189,804
----------- -----------
Net increase in net assets resulting from
operations.......................................... 4,049,052 1,858,483
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (211,870) (29,623)
Net realized gains......................................... (544,700) (26,352)
----------- -----------
Total dividends and distributions to shareholders..... (756,570) (55,975)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 17,604,938 7,801,061
Reinvestment of dividends and distributions................ 756,533 55,975
Cost of shares redeemed.................................... (3,401,674) (2,865,595)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 14,959,797 4,991,441
----------- -----------
Total increase in net assets..................... 18,252,279 6,793,949
NET ASSETS
Beginning of year.......................................... 16,004,392 9,210,443
----------- -----------
End of year (including undistributed net investment income
of $226,925 and $211,870, respectively).................. $34,256,671 $16,004,392
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 837,586 427,444
Issued in reinvestment of dividends and distributions...... 38,520 3,289
Redeemed................................................... (164,530) (156,903)
----------- -----------
Net increase.......................................... 711,576 273,830
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-18
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global Equity
Portfolio, the Managed Portfolio, the Bond Portfolio, the U. S. Government
Income Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"),
a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting
A-19
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
principles. These "book-tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their Federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains, respectively. To the extent distributions
exceed current and accumulated earnings and profits for Federal income tax
purposes, they are reported as distributions of paid-in-capital or tax return of
capital. At December 31, 1996, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $52,990, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $23,565.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $20,565,700 and $9,055,696,
respectively.
A-20
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $3,909,842, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $663,423, and net unrealized appreciation for Federal income tax purposes is
$3,246,419. Federal income tax cost basis of portfolio securities is $31,056,264
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-21
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 19.91 $ 17.38 $ 17.49
----------- ----------- ----------
Income from investment operations:
Net investment income................... 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments........................ 3.45 2.37 (0.17)
----------- ----------- ----------
Total from investment operations...... 3.59 2.63 (0.11)
----------- ----------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.25) (0.05) --
Distributions to shareholders from net
realized capital gains................ (0.64) (0.05) --
----------- ----------- ----------
Total dividends and distributions to
shareholders....................... (0.89) (0.10) --
----------- ----------- ----------
Net asset value, end of period.......... $ 22.61 $ 19.91 $ 17.38
=========== =========== ==========
Total return(2)......................... 18.7% 15.2% (0.6%)
=========== =========== ==========
Net assets, end of period............... $34,256,671 $16,004,392 $ 9,210,443
----------- ----------- ----------
Ratio of net operating expenses to
average net assets(6)................. 0.93%(4,5) 0.74% 0.74%(3)
----------- ----------- ----------
Ratio of net investment income to
average net assets(6)................. 1.03%(4) 1.75% 1.22%(3)
----------- ----------- ----------
Portfolio turnover rate................. 50% 69% 32%
----------- ----------- ----------
Average commission rate................. $ 0.0493 -- --
----------- ----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $22,131,648.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.01% and
0.92%, respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Small Cap Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Small Cap Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-23
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 13.6%
AUTOMOTIVE - 3.8%
$6,870,000 Ford Motor Credit Co., 5.42%, 1/6/97................................ $ 6,864,828
------------
CONGLOMERATES - 4.3%
7,680,000 General Electric Capital Corp., 5.39%, 1/7/97....................... 7,673,101
------------
INSURANCE - .3%
555,000 Marsh & McLennan Co., Inc., 6.55%, 1/2/97........................... 554,899
------------
MISCELLANEOUS FINANCIAL SERVICES - 5.2%
Household Finance Corp.,
130,000 5.34%, 1/7/97....................................................... 129,884
3,300,000 5.45%, 1/7/97....................................................... 3,297,003
6,000,000 Merrill Lynch & Co., Inc., 5.70%, 1/6/97............................ 5,995,250
------------
9,422,137
------------
Total Short-Term Corporate Notes (cost - $24,514,965)............... $ 24,514,965
------------
U.S. TREASURY NOTES AND BONDS - .9%
$ 700,000 6.25%, 8/15/23...................................................... $ 656,250
630,000 7.875%, 4/15/98..................................................... 646,437
297,500 7.875%, 8/15/01..................................................... 317,117
------------
Total U.S. Treasury Notes and Bonds (cost - $1,514,907)............. $ 1,619,804
------------
CONVERTIBLE CORPORATE BOND - .4%
REAL ESTATE - .4%
$ 614,371 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $557,508)................................................... $ 743,231
------------
<CAPTION>
SHARES
- ----------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK - .0%
RETAIL - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............ $ 45,533
------------
COMMON STOCKS - 85.4%
AEROSPACE/DEFENSE - 7.5%
43,200 Lockheed Martin Corp. .............................................. $ 3,952,800
150,000 McDonnell Douglas Corp. ............................................ 9,600,000
------------
13,552,800
------------
BANKING - 12.3%
80,000 Citicorp............................................................ 8,240,000
10,000 First Empire State Corp. ........................................... 2,880,000
41,200 Wells Fargo & Co. .................................................. 11,113,700
------------
22,233,700
------------
</TABLE>
A-24
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BUILDING & CONSTRUCTION - .3%
31,680 Newport News Shipbuilding Inc.*..................................... $ 475,200
------------
CHEMICALS - 8.4%
83,000 du Pont (E.I.) de Nemours & Co. .................................... 7,833,125
100,000 Hercules, Inc. ..................................................... 4,325,000
80,000 Monsanto Co. ....................................................... 3,110,000
------------
15,268,125
------------
CONGLOMERATES - 4.1%
164,200 Tenneco, Inc. ...................................................... 7,409,525
------------
CONSUMER PRODUCTS - 3.6%
236,200 Mattel, Inc. ....................................................... 6,554,550
------------
DRUGS & MEDICAL PRODUCTS - 3.1%
130,000 Becton, Dickinson & Co. ............................................ 5,638,750
------------
ENERGY - 2.7%
55,300 Triton Energy Ltd.*................................................. 2,682,050
73,091 Union Pacific Resources Group, Inc. ................................ 2,137,912
------------
4,819,962
------------
FOOD SERVICES - 3.2%
127,700 McDonald's Corp. ................................................... 5,778,425
------------
INSURANCE - 6.6%
60,000 ACE Ltd. ........................................................... 3,607,500
138,600 EXEL Ltd. .......................................................... 5,249,475
15,400 Transamerica Corp. ................................................. 1,216,600
41,200 Travelers Group, Inc. .............................................. 1,869,450
------------
11,943,025
------------
MANUFACTURING - 2.3%
54,700 Catepillar, Inc..................................................... 4,116,175
------------
METALS & MINING - 3.2%
196,100 Freeport McMoRan Copper & Gold (Class B)............................ 5,858,487
------------
MISCELLANEOUS FINANCIAL SERVICES - 12.1%
57,200 American Express Co. ............................................... 3,231,800
161,000 Countrywide Credit Industries, Inc. ................................ 4,608,625
77,500 Federal Home Loan Mortgage Corp. ................................... 8,534,687
145,900 Federal National Mortgage Assoc. ................................... 5,434,775
------------
21,809,887
------------
PAPER PRODUCTS - 1.9%
80,000 Champion International Corp. ....................................... 3,460,000
------------
PRINTING/PUBLISHING - .8%
45,600 Donnelly (R.R.) & Sons Co. ......................................... 1,430,700
------------
</TABLE>
A-25
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RAILROADS - 2.9%
86,300 Union Pacific Corp. ................................................ $ 5,188,788
------------
REAL ESTATE - .6%
811 Security Capital Group, Inc. (A).................................... 1,009,517
------------
TECHNOLOGY - 5.9%
29,300 Intel Corp. ........................................................ 3,836,469
190,600 National Semiconductor Corp.*....................................... 4,645,875
75,000 Unitrode Corp.*..................................................... 2,203,125
------------
10,685,469
------------
TELECOMMUNICATIONS - 3.9%
30,000 Sprint Corp. ....................................................... 1,196,250
456,000 Tele-Communications, Inc. (Class A) *............................... 5,956,500
------------
7,152,750
------------
Total Common Stocks (cost - $115,007,880)........................ $154,385,835
------------
Total Investments (cost - $141,697,788)................... 100.3% $181,309,368
Other Liabilities in Excess of Other Assets............... (0.3) (581,274)
----- ------------
Total Net Assets........................................ 100.0% $180,728,094
===== ============
</TABLE>
- ---------------
* Non-income producing security.
(A) Restricted Securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14 9/16/94 $614,371 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock 9/16/94 -- 811 949 1,245
</TABLE>
A-26
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $141,697,788).................................... $181,309,368
Cash........................................................................... 6,937
Receivable from investments sold............................................... 1,047,817
Receivable from fund shares sold............................................... 329,292
Dividends receivable........................................................... 123,034
Interest receivable............................................................ 110,591
Other assets................................................................... 7,932
------------
Total Assets................................................................. 182,934,971
------------
LIABILITIES
Payable for investments purchased.............................................. 1,897,083
Investment advisory fee payable................................................ 137,907
Payable for fund shares redeemed............................................... 132,215
Other payables and accrued expenses............................................ 39,672
------------
Total Liabilities............................................................ 2,206,877
------------
Total Net Assets............................................................. $180,728,094
============
NET ASSETS
Par value ($.01 per share)..................................................... $ 49,914
Paid-in-capital in excess of par............................................... 132,265,145
Accumulated undistributed net investment income................................ 2,161,818
Accumulated undistributed net realized gain on investments..................... 6,639,637
Net unrealized appreciation on investments..................................... 39,611,580
------------
Total Net Assets............................................................. $180,728,094
============
Fund shares outstanding........................................................ 4,991,370
------------
Net asset value per share...................................................... $ 36.21
============
</TABLE>
See accompanying notes to financial statements.
A-27
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 1,924,873
Interest...................................................................... 1,333,194
-----------
Total investment income.................................................... 3,258,067
-----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................ 972,381
Custodian fees (note 1G)...................................................... 31,020
Trustees' fees and expenses................................................... 25,790
Reports and notices to shareholders........................................... 21,135
Auditing, consulting and tax return preparation fees.......................... 13,434
Transfer and dividend disbursing agent fees................................... 11,151
Legal fees.................................................................... 9,476
Miscellaneous................................................................. 23,141
-----------
Total operating expenses................................................... 1,107,528
Less: Investment advisory fees waived (note 2A)............................ (8,220)
Less: Expense offset arrangement (note 1G)................................. (3,060)
-----------
Net operating expenses................................................ 1,096,248
-----------
Net investment income................................................. 2,161,819
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments.............................................. 6,639,637
Net change in unrealized appreciation (depreciation) on investments........... 18,285,659
-----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments............................................................... 24,925,296
-----------
Net increase in net assets resulting from operations............................ $27,087,115
===========
</TABLE>
See accompanying notes to financial statements.
A-28
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 2,161,819 $ 1,378,069
Net realized gain on investments........................... 6,639,637 1,023,914
Net change in unrealized appreciation (depreciation) on
investments.............................................. 18,285,659 23,901,028
------------ -----------
Net increase in net assets resulting from
operations.......................................... 27,087,115 26,303,011
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (1,378,070) (360,801)
Net realized gains......................................... (878,874) --
------------ -----------
Total dividends and distributions to shareholders..... (2,256,944) (360,801)
------------ -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 79,297,599 27,913,098
Reinvestment of dividends and distributions................ 2,256,944 360,801
Cost of shares redeemed.................................... (24,844,767) (9,971,333)
------------ -----------
Net increase in net assets from fund share
transactions........................................ 56,709,776 18,302,566
------------ -----------
Total increase in net assets..................... 81,539,947 44,244,776
NET ASSETS
Beginning of year.......................................... 99,188,147 54,943,371
------------ -----------
End of year (including undistributed net investment income
of $2,161,818 and $1,378,069, respectively).............. $ 180,728,094 $99,188,147
============ ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 2,403,077 1,016,970
Issued in reinvestment of dividends and distributions...... 73,016 15,866
Redeemed................................................... (775,472) (379,452)
------------ -----------
Net increase.......................................... 1,700,621 653,384
============ ===========
</TABLE>
See accompanying notes to financial statements.
A-29
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994, as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio (the "Portfolio"), the Bond Portfolio, the U. S. Government Income
Portfolio and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts
A-30
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
based on their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-
in-capital or tax return of capital. At December 31, 1996, the Portfolio did not
have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $107,123, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $61,183.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $84,349,690 and $30,263,820,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $40,341,986, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $730,406 and net unrealized appreciation for Federal income tax purposes is
$39,611,580. Federal income tax cost basis of portfolio securities is
$141,697,788 at December 31, 1996.
A-31
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-32
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 30.14 $ 20.83 $ 21.80
----------- ---------- ---------
Income from investment operations:
Net investment income.................. 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments....................... 6.31 9.02 (1.11)
----------- ---------- ---------
Total from investment operations..... 6.74 9.44 (0.97)
----------- ---------- ---------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income.................... (0.41) (0.13) --
Distributions to shareholders from net
realized capital gains............... (0.26) -- --
----------- ---------- ---------
Total dividends and distributions to
shareholders...................... (0.67) (0.13) 0.00
----------- ---------- ---------
Net asset value, end of period......... $ 36.21 $ 30.14 $ 20.83
=========== ========== =========
Total return(2)........................ 22.8% 45.6% (4.4%)
=========== ========== =========
Net assets, end of period.............. $ 180,728,094 $99,188,147 $54,943,371
----------- ---------- ---------
Ratio of net operating expenses to
average net assets(6)................ 0.84%(4,5) 0.66% 0.66%(3)
----------- ---------- ---------
Ratio of net investment income to
average net assets(6)................ 1.66%(4) 1.85% 2.34%(3)
----------- ---------- ---------
Portfolio turnover rate................ 27% 22% 8%
----------- ---------- ---------
Average commission rate................ $ 0.0592 -- --
----------- ---------- ---------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $130,347,107.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 0.85% and
1.65%, respectively, for the year ended December 31, 1996, 0.74% and 1.77%,
respectively, for the year ended December 31, 1995 and 0.96% and 2.04%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Managed Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Managed Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-34
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. TREASURY NOTES AND BONDS - 35.6%
$175,000.. 5.75%, 10/31/97...................................................... $ 175,247
525,000.. 6.50%, 10/15/06...................................................... 527,872
175,000.. 7.25%, 8/15/22....................................................... 185,117
----------
Total U.S. Treasury Notes and Bonds (cost - $911,980)................ $ 888,236
----------
MORTGAGE-RELATED SECURITIES - 34.5%
$ 80,682 Federal Home Loan Mortgage Corp.,
8.50%, 10/15/19...................................................... $ 81,942
Federal National Mortgage Assoc.,
177,953 6.50%, 5/1/26........................................................ 169,723
196,302 7.00%, 1/1/10........................................................ 197,283
154,262 8.00%, 8/1/24........................................................ 157,492
8,207 9.00%, 8/1/02........................................................ 8,553
20,111 9.50%, 12/1/06....................................................... 21,135
73,983 9.50%, 12/1/19....................................................... 80,248
141,214 Government National Mortgage Assoc.,
8.50%, 3/15/25....................................................... 146,684
----------
Total Mortgage-Related Securities (cost - $841,948).................. $ 863,060
----------
CORPORATE NOTES & BONDS - 26.5%
AUTOMOTIVE - 4.3%
$ 100,000 General Motors Acceptance Corp., 8.25%, 2/24/04...................... $ 107,161
----------
CONGLOMERATES - 4.3%
100,000 General Electric Capital Corp., 8.375%, 3/1/01....................... 106,652
----------
MISCELLANEOUS FINANCIAL SERVICES - 17.9%
125,000 Associates Corp., N.A., 5.25%, 3/30/00............................... 120,684
100,000 BarclaysAmerican Corp., 7.875%, 8/15/98.............................. 102,535
100,000 Household Finance Corp., 6.875%, 3/1/03.............................. 100,509
125,000 International Lease Finance Corp., 6.125%, 11/1/99................... 123,714
----------
447,442
----------
Total Corporate Notes & Bonds (cost - $648,295)...................... $ 661,255
----------
Total Investments (cost - $2,402,223)....................... 96.6% $2,412,551
Other Assets in Excess of Other Liabilities................. 3.4 84,895
----- ----------
Total Net Assets............................................ 100.0% $2,497,446
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-35
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $2,402,223)........................................ $2,412,551
Cash............................................................................. 71,315
Interest receivable.............................................................. 32,400
Other assets..................................................................... 393
----------
Total Assets................................................................... 2,516,659
----------
LIABILITIES
Investment advisory fee payable.................................................. 3,750
Other payables and accrued expenses.............................................. 15,463
----------
Total Liabilities.............................................................. 19,213
----------
Total Net Assets............................................................... $2,497,446
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 2,629
Paid-in-capital in excess of par................................................. 2,473,650
Accumulated undistributed net realized gain on investments....................... 10,839
Net unrealized appreciation on investments....................................... 10,328
----------
Total Net Assets............................................................... $2,497,446
==========
Fund shares outstanding.......................................................... 262,938
----------
Net asset value per share........................................................ $ 9.50
==========
</TABLE>
See accompanying notes to financial statements.
A-36
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................................... $ 323,750
--------
OPERATING EXPENSES
Investment advisory fees (note 2).............................................. 24,157
Custodian fees (note 1G)....................................................... 17,341
Auditing, consulting and tax return preparation fees........................... 10,226
Transfer and dividend disbursing agent fees.................................... 9,082
Legal fees..................................................................... 1,918
Reports and notices to shareholders............................................ 1,335
Miscellaneous.................................................................. 3,917
--------
Total operating expenses.................................................... 67,976
Less: Investment advisory fees waived (note 2).............................. (18,557)
Less: Expense offset arrangement (note 1G).................................. (1,195)
--------
Net operating expenses................................................. 48,224
--------
Net investment income.................................................. 275,526
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 10,977
Net change in unrealized appreciation (depreciation) on investments............ (184,990)
--------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ (174,013)
--------
Net increase in net assets resulting from operations............................. $ 101,513
========
</TABLE>
See accompanying notes to financial statements.
A-37
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 275,526 $ 244,328
Net realized gain on investments........................... 10,977 79,769
Net change in unrealized appreciation (depreciation) on
investments ............................................. (184,990) 269,489
----------- -----------
Net increase in net assets resulting from
operations.......................................... 101,513 593,586
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (275,526) (244,328)
Net realized gains......................................... (75,648) --
----------- -----------
Total dividends and distributions to shareholders..... 351,174 (244,328)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 1,066,456 1,574,585
Reinvestment of dividends and distributions................ 350,959 242,735
Cost of shares redeemed.................................... (2,954,763) (1,537,477)
----------- -----------
Net increase (decrease) in net assets from fund share
transactions........................................ (1,537,348) 279,843
----------- -----------
Total increase (decrease) in net assets.......... (1,787,009) 629,101
NET ASSETS
Beginning of year.......................................... 4,284,455 3,655,354
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 2,497,446 $ 4,284,455
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 107,627 165,081
Issued in reinvestment of dividends and distributions...... 36,654 25,011
Redeemed................................................... (310,084) (158,718)
----------- -----------
Net increase (decrease)............................... (165,803) 31,374
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-38
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio (the "Portfolio"), the U. S. Government Income
Portfolio and the Money Market Portfolio. The Trust filed an application with
the Securities and Exchange Commission for an Order approving the substitution
of shares of the U.S. Government series for shares of the Bond series. Notice of
the Application was published January 29, 1997. If the order is issued, the
substitution will be effected shortly thereafter. OpCap Advisors, (the
"Adviser"), a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as
the Trust's investment adviser. The Trust is an investment vehicle for variable
annuity and variable life insurance contracts of various life insurance
companies, and qualified pension and retirement plans. The following is a
summary of significant accounting policies consistently followed by the
Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting
A-39
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains,
respectively. To the extent distributions exceed current and accumulated
earnings and profits for Federal income tax purposes, they are reported as
distributions of paid-in-capital or tax return of capital. At December 31, 1996,
the Portfolio did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .50%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $6,205,620 and $7,630,072,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $35,184, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $24,856 and net unrealized appreciation for Federal income tax purposes is
$10,328. Federal income tax cost basis of portfolio securities is $2,402,223 at
December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for
A-40
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(5) SUBSEQUENT EVENT (CONTINUED)
PIMCO Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire
the one-third managing general partner interest in Oppenheimer Capital and the
1.0% general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-41
<PAGE>
OCC ACCUMULATION TRUST
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 9.99 $ 9.20 $ 9.40
Income from investment operations:
Net investment income................... 0.54 0.58 0.17
Net realized and unrealized gain (loss)
on investments........................ (0.34) 0.79 (0.20)
---------- ---------- ----------
Total from investment operations...... 0.20 1.37 (0.03)
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.54) (0.58) (0.17)
Distributions to shareholders from net
realized capital gains................ (0.15) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.69) (0.58) (0.17)
---------- ---------- ----------
Net asset value, end of period.......... $ 9.50 $ 9.99 $ 9.20
========== ========== ==========
Total return(2)......................... 2.2% 15.2% (0.3%)
========== ========== ==========
Net assets, end of period............... $ 2,947,446 $ 4,284,455 $ 3,655,354
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.02%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 5.70%(4) 5.95% 6.26%(3)
---------- ---------- ----------
Portfolio turnover rate................. 138% 134% 7%
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,831,393.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.41% and
5.29%, respectively, for the year ended December 31, 1996, 1.52% and 5.43%,
respectively, for the year ended December 31, 1995 and 2.05% and 5.21%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
OCC ACCUMULATION TRUST -- BOND PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Bond Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-43
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 28.5%
Federal Home Loan Bank,
$ 105,000 5.21%, 2/13/97..................................................... $ 104,347
125,000 5.42%, 1/2/97...................................................... 124,981
Federal Home Loan Mortgage Corp.,
30,000 5.21%, 1/27/97..................................................... 29,887
615,000 5.40%, 1/2/97...................................................... 614,908
120,000 5.42%, 1/3/97...................................................... 119,964
195,000 5.52%, 1/8/97...................................................... 194,791
Federal National Mortgage Assoc.,
10,000 5.36%, 2/18/97..................................................... 9,928
305,000 5.42%, 1/17/97..................................................... 304,265
----------
Total U.S. Government Agency Notes (amortized cost - $1,503,071)... $1,503,071
----------
SHORT-TERM CORPORATE NOTES - 71.6%
AUTOMOTIVE - 7.2%
$ 130,000 Daimer-Benz North America Corp., 5.30%, 3/14/97.................... $ 128,622
125,000 Ford Motor Credit Co., 5.41%, 3/31/97.............................. 123,328
130,000 General Motors Acceptance Corp., 5.30%, 6/23/97.................... 126,689
----------
378,639
----------
BANKING - 19.8%
150,000 Abbey National North America, 5.33%, 3/11/97....................... 148,468
150,000 ABN-Amro North America Finance Inc., 5.40%, 3/6/97................. 148,560
100,000 Bayerische Vereinsbank AG, 5.33%, 1/8/97........................... 99,896
100,000 Commerzbank U.S. Finance Inc., 5.33%, 2/28/97...................... 99,141
150,000 Morgan (J.P.) & Co., Inc., 5.36%, 1/7/97........................... 149,866
110,000 Societe Generale N.A. Inc., 5.50%, 2/18/97......................... 110,000
150,000 Svenska Handelsbanken Inc., 5.53%, 1/16/97......................... 149,654
140,000 Toronto-Dominion Holdings USA Inc., 5.30%, 2/5/97.................. 139,279
----------
1,044,864
----------
CHEMICALS - 2.8%
150,000 U.S. Borax & Chemical Corp., 5.42%, 2/24/97........................ 148,781
----------
CONGLOMERATES - 2.1%
110,000 General Electric Capital Corp., 5.45%, 2/26/97..................... 109,067
----------
ENTERTAINMENT - 2.0%
105,000 Walt Disney Co., 5.30%, 1/6/97..................................... 104,923
----------
MACHINERY/ENGINEERING - 5.1%
120,000 Deere (John) Capital Corp., 5.30%, 4/14/97......................... 118,180
150,000 Pitney Bowes Credit Corp., 5.70%, 1/15/97.......................... 149,668
----------
267,848
----------
</TABLE>
A-44
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------- ----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 22.4%
$ 129,000 American Express Credit Corp., 5.30%, 1/2/97....................... $ 128,981
110,000 Beneficial Corp., 5.31%, 7/14/97................................... 106,852
140,000 Cheltenham & Gloucester Building Society PLC, 5.26%, 3/24/97....... 138,323
100,000 Eksportfinans A/S, 5.39%, 2/18/97.................................. 99,281
150,000 Goldman Sachs Group L.P., 5.43%, 1/13/97........................... 149,729
150,000 Household Finance Corp., 5.42%, 1/6/97............................. 149,887
130,000 Merrill Lynch & Co., Inc., 5.34%, 1/21/97.......................... 129,614
130,000 Morgan Stanley Group, Inc., 5.43%, 1/15/97......................... 129,726
150,000 USAA Capital Corp., 5.32%, 2/24/97................................. 148,803
----------
1,181,196
----------
SOVEREIGN - 2.8%
150,000 Sweden (Kingdom of), 5.30%, 2/3/97................................. 149,271
----------
TECHNOLOGY - 5.2%
130,000 IBM Credit Corp., 5.28%, 3/17/97................................... 128,570
150,000 Motorola Credit Corp., 5.23%, 2/20/97.............................. 148,910
----------
277,480
----------
TELECOMMUNICATIONS - 2.2%
120,000 Ameritech Corp., 5.30%, 3/31/97.................................... 118,428
----------
Total Short-Term Corporate Notes (amortized cost - $3,780,497)..... $3,780,497
----------
Total Investments (amortized cost - $5,283,568)............ 100.1% $5,283,568
Other Liabilities in Excess of Other Assets................ (0.1) (4,526)
----- ----------
Total Net Assets........................................... 100.0% $5,279,042
===== =========
</TABLE>
See accompanying notes to financial statements.
A-45
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost - $5,283,568).............................. $5,283,568
Cash............................................................................. 10,094
Interest receivable.............................................................. 2,235
Other assets..................................................................... 331
----------
Total Assets................................................................... 5,296,228
----------
LIABILITIES
Investment advisory fee payable.................................................. 1,090
Payable for fund shares redeemed................................................. 446
Other payables and accrued expenses.............................................. 15,650
----------
Total Liabilities.............................................................. 17,186
----------
Total Net Assets............................................................... $5,279,042
==========
NET ASSETS
Par value ($.01 per share)....................................................... $ 52,791
Paid-in-capital in excess of par................................................. 5,226,264
Accumulated net realized loss on investments..................................... (13)
----------
Total Net Assets............................................................... $5,279,042
==========
Fund shares outstanding.......................................................... 5,279,054
----------
Net asset value per share........................................................ $ 1.00
==========
</TABLE>
See accompanying notes to financial statements.
A-46
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $222,268
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 16,388
Custodian fees (note 1G)........................................................ 10,779
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,066
Legal fees...................................................................... 1,923
Reports and notices to shareholders............................................. 951
Miscellaneous................................................................... 3,703
--------
Total operating expenses..................................................... 53,119
Less: Investment advisory fees waived (note 2)............................... (11,550)
Less: Expense offset arrangement (note 1G)................................... (717)
--------
Net operating expenses.................................................. 40,852
--------
Net investment income................................................... 181,416
REALIZED LOSS ON INVESTMENTS - NET
Net realized loss on investments................................................ (14)
--------
Net increase in net assets resulting from operations.............................. $181,402
========
</TABLE>
See accompanying notes to financial statements.
A-47
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 181,416 $ 203,353
Net realized gain (loss) on investments.................... (14) 47
----------- -----------
Net increase in net assets resulting from
operations.......................................... 181,402 203,400
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (181,416) (203,353)
Net realized gains......................................... (46) --
----------- -----------
Total dividends and distributions to shareholders..... (181,462) (203,353)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 6,146,104 4,346,773
Reinvestment of dividends and distributions................ 182,704 201,653
Cost of shares redeemed.................................... (5,405,790) (3,711,915)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 923,018 836,511
----------- -----------
Total increase in net assets..................... 922,958 836,558
NET ASSETS
Beginning of year.......................................... 4,356,084 3,519,526
----------- -----------
End of year (including undistributed net investment income
of $0 and $0, respectively).............................. $ 5,279,042 $ 4,356,084
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 6,146,104 4,346,773
Issued in reinvestment of dividends and distributions...... 182,704 201,653
Redeemed................................................... (5,405,790) (3,711,915)
----------- -----------
Net increase.......................................... 923,018 836,511
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-48
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U. S. Government Income Portfolio, and the
Money Market Portfolio (the "Portfolio"). OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The Trust is an investment vehicle for variable annuity and
variable life insurance contracts of various life insurance companies, and
qualified pension and retirement plans. The following is a summary of
significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Portfolio securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at cost on
the date of purchase and thereafter assuming a constant dollar amortization to
maturity of the difference between the principal amount due at maturity and the
initial cost of the security.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required. Federal income tax cost basis of
portfolio securities is the same as for financial reporting purposes.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A-49
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with the
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .40%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee necessary to limit total operating expenses of the Portfolio to 1.00% (net
of expense offsets) of average daily net assets on an annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1996, purchases and sales/maturities of
investment securities, were $46,988,455 and $46,273,740, respectively.
(4) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-50
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SEPTEMBER 16, 1994(1)
DECEMBER 31, 1996 DECEMBER 31, 1995 TO DECEMBER 31, 1994
----------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................... 0.04 0.05 0.01
Net realized gain (loss) on
investments........................... (0.00) 0.00 --
---------- ---------- ----------
Total from investment operations...... 0.04 0.05 0.01
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.04) (0.05) (0.01)
Distributions to shareholders from net
realized capital gains................ (0.00) -- --
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.04) (0.05) (0.01)
---------- ---------- ----------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total return(2)......................... 4.5% 5.1% 1.2%
========== ========== ==========
Net assets, end of period............... $ 5,279,042 $ 4,356,084 $ 3,519,526
---------- ---------- ----------
Ratio of net operating expenses to
average net assets(6)................. 1.01%(4,5) 1.00% 1.00%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets(6)................. 4.43%(4) 4.94% 4.13%(3)
---------- ---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $4,097,126.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income to average daily net assets would have been 1.30% and
4.13%, respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
A-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Money Market Portfolio (one of
the seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1996 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-52
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------
<C> <S> <C> <C>
U.S. TREASURY NOTES - 36.3%
$ 100,000 5.75%, 10/31/00.................................................... $ 98,672
475,000 6.50%, 8/15/97..................................................... 477,822
390,000 6.50%, 10/15/06.................................................... 392,133
125,000 7.25%, 5/15/04..................................................... 131,523
140,000 7.375%, 11/15/97................................................... 142,012
----------
Total U.S. Treasury Notes (cost - $1,242,934)...................... $1,242,162
----------
U.S. GOVERNMENT AGENCY NOTES - 62.0%
$ 75,000 Federal Farm Credit Bank, 8.65%, 10/1/99............................. $ 79,629
Federal Home Loan Bank,
60,000 6.94%, 3/14/97..................................................... 60,169
100,000 8.09%, 12/28/04.................................................... 108,781
155,000 8.60%, 8/25/99..................................................... 164,325
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03..................................................... 172,758
125,000 7.75%, 11/7/01..................................................... 131,973
150,000 8.115%, 1/31/05.................................................... 163,266
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98.................................................... 59,597
20,000 5.46%, 1/3/97...................................................... 19,994
20,000 5.46%, 1/7/97...................................................... 19,982
125,000 8.50%, 2/1/05...................................................... 131,426
230,000 8.80%, 7/25/97..................................................... 234,133
55,000 9.20%, 6/10/97..................................................... 55,798
150,000 9.20%, 9/11/00..................................................... 164,274
150,000 Private Export Funding Corp., 9.10%, 10/30/98........................ 157,868
Student Loan Marketing Assoc.
75,000 7.00%, 3/3/98...................................................... 76,008
100,000 7.20%, 11/9/00..................................................... 103,047
Tennessee Valley Authority,
150,000 6.00%, 11/1/00..................................................... 148,430
65,000 8.375%, 10/1/99.................................................... 68,554
----------
Total U.S. Government Agency Notes (cost - $2,103,674)............. $2,120,012
----------
Total Investments (cost - $3,346,608)....................... 98.3% $3,362,174
Other Assets in Excess of Other Liabilities................. 1.7 59,824
----- ----------
Total Net Assets............................................ 100.0% $3,421,998
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-53
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $3,346,608)....................................... $3,362,174
Cash............................................................................ 11,662
Interest receivable............................................................. 63,513
Receivable from fund shares sold................................................ 6,026
Other assets.................................................................... 203
----------
Total Assets.................................................................. 3,443,578
----------
LIABILITIES
Investment advisory fee payable................................................. 4,337
Payable for fund shares redeemed................................................ 1,988
Other payables and accrued expenses............................................. 15,255
----------
Total Liabilities............................................................. 21,580
----------
Total Net Assets.............................................................. $3,421,998
==========
NET ASSETS
Par value ($.01 per share)...................................................... $ 3,297
Paid-in-capital in excess of par................................................ 3,411,026
Accumulated net realized loss on investments.................................... (7,891)
Net unrealized appreciation on investments...................................... 15,566
----------
Total Net Assets.............................................................. $3,421,998
==========
Fund shares outstanding......................................................... 329,735
----------
Net asset value per share....................................................... $ 10.38
==========
</TABLE>
See accompanying notes to financial statements.
A-54
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $153,307
--------
OPERATING EXPENSES
Custodian fees (note 1G)........................................................ 17,308
Investment advisory fees (note 2)............................................... 14,797
Auditing, consulting and tax return preparation fees............................ 10,309
Transfer and dividend disbursing agent fees..................................... 9,044
Legal fees...................................................................... 1,753
Reports and notices to shareholders............................................. 737
Miscellaneous................................................................... 3,802
--------
Total operating expenses..................................................... 57,750
Less: Investment advisory fees waived and expenses assumed (note 2).......... (34,102)
Less: Expense offset arrangement (note 1G)................................... (394)
--------
Net operating expenses.................................................. 23,254
--------
Net investment income................................................... 130,053
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized loss on investments................................................ (7,891)
Net change in unrealized appreciation (depreciation) on investments............. (26,424)
--------
Net realized loss and change in unrealized appreciation (depreciation) on
investments................................................................. (34,315)
--------
Net increase in net assets resulting from operations.............................. $ 95,738
========
</TABLE>
See accompanying notes to financial statements.
A-55
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income..................................... $ 130,053 $ 46,710
Net realized gain (loss) on investments................... (7,891) 7,795
Net change in unrealized appreciation (depreciation) on
investments............................................. (26,424) 41,990
----------------- --------------------
Net increase in net assets resulting from
operations......................................... 95,738 96,495
----------------- --------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (130,053) (46,710)
Net realized gains........................................ -- (7,795)
----------------- --------------------
Total dividends and distributions to shareholders.... (130,053) (54,505)
----------------- --------------------
FUND SHARE TRANSACTIONS
Net proceeds from sales................................... 2,180,216 1,442,074
Reinvestment of dividends and distributions............... 130,663 53,894
Cost of shares redeemed................................... (297,024) (95,500)
----------------- --------------------
Net increase in net assets from fund share
transactions....................................... 2,013,855 1,400,468
----------------- --------------------
Total increase in net assets.................... 1,979,540 1,442,458
NET ASSETS
Beginning of period....................................... 1,442,458 0
----------------- --------------------
End of period (including undistributed net investment
income of $0 and $0, respectively)...................... $ 3,421,998 $1,442,458
============== ===============
SHARES ISSUED AND REDEEMED
Issued.................................................... 209,939 139,749
Issued in reinvestment of dividends and distributions..... 12,589 5,140
Redeemed.................................................. (28,592) (9,090)
----------------- --------------------
Net increase......................................... 193,936 135,799
============== ===============
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-56
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust) was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as amended, as a
diversified, open-ended management investment company. The Trust is authorized
to issue an unlimited number of seven classes of shares of beneficial interest
at $.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio (the
"Portfolio") and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a
majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Trust's
investment adviser. The U.S. Government Income Portfolio one of the Trust's
seven portfolios, commenced operations on January 3, 1995. The Trust is an
investment vehicle for variable annuity and variable life insurance contracts of
various life insurance companies, and qualified pension and retirement plans.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and
A-57
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
accumulated earnings and profits for Federal income tax purposes, they are
reported as distributions of paid-in-capital or tax return of capital. At
December 31, 1996, the Portfolio did not have any permanent book-tax
differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .60%.
The Adviser has voluntarily agreed to waive that portion of the advisory
fee and to assume any necessary expenses to limit total operating expenses of
the Portfolio to 1.00% (net of expense offsets) of average daily net assets on
an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996, purchases and sales of investment
securities, other than short-term securities, were $2,669,452 and $705,798,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $22,879, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $9,001 and net unrealized appreciation for Federal income tax purposes is
$13,878. Federal income tax cost basis of portfolio securities is $3,348,296 at
December 31, 1996.
(5) CAPITAL LOSS CARRY-FORWARD
For the year ended December 31, 1996, the Portfolio incurred net realized
capital losses of $6,203 which are available as a reduction against future net
capital gains realized before the end of fiscal year 2004 to the extent provided
by regulations. To the extent that this capital loss carry-forward is used to
offset future net capital gains, it is possible that gains so offset will not be
distributed to shareholders.
(6) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock
A-58
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(6) SUBSEQUENT EVENT (CONTINUED)
Exchange and of which Oppenheimer Financial Corp. is the sole general partner,
owns the remaining two-thirds interest. On February 13, 1997, PIMCO Advisors
L.P., a registered investment adviser, signed a definitive agreement with
Oppenheimer Group, Inc. and its subsidiary Oppenheimer Financial Corp. for PIMCO
Advisors L.P. and its affiliate, Thomson Advisory Group, Inc., to acquire the
one-third managing general partner interest in Oppenheimer Capital and the 1.0%
general partner interest in Oppenheimer Capital L.P. The completion of the
transaction is subject to certain client, lender, IRS and other approvals.
A-59
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 10.62 $ 10.00
---------- ----------
Income from investment operations:
Net investment income.................................. 0.55 0.60
Net realized and unrealized gain (loss) on
investments.......................................... (0.24) 0.68
---------- ----------
Total from investment operations..................... 0.31 1.28
---------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.55) (0.60)
Distributions to shareholders from net realized capital
gains................................................ -- (0.06)
---------- ----------
Total dividends and distributions to shareholders.... (0.55) (0.66)
---------- ----------
Net asset value, end of period......................... $ 10.38 $ 10.62
========== ==========
Total return(2)........................................ 3.0% 13.1%
========== ==========
Net assets, end of period.............................. $ 3,421,998 $1,442,458
---------- ----------
Ratio of net operating expenses to average net
assets(6)............................................ 0.96%(4,5) 0.75%(3)
---------- ----------
Ratio of net investment income to average net
assets(6)............................................ 5.27%(4) 5.75%(3)
---------- ----------
Portfolio turnover rate................................ 31% 65%
---------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1996 were $2,466,244.
(5) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(6) During the periods presented above, the Adviser waived all of its fees and
assumed a portion of the Portfolio's operating expenses. Additionally, for
the year ended December 31, 1996, the Portfolio benefited from an expense
offset arrangement with its custodian bank. If such waivers, assumptions and
expense offsets had not been in effect, the ratios of net operating expenses
to average daily net assets and the ratios of net investment income to
average daily net assets would have been 2.34% and 3.87%, respectively, for
the year ended December 31, 1996, and 4.73% and 1.77%, annualized,
respectively for the period January 3, 1995 (commencement of operations) to
December 31, 1995.
A-60
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- U.S. Government Income Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the U.S. Government Income
Portfolio (one of the seven portfolios constituting OCC Accumulation Trust,
hereafter referred to as the "Portfolio") at December 31, 1996, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for the year then ended and for the period January 3,
1995 (commencement of operations) through December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-61
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 9.3%
US$1,585,000 Federal Home Loan Bank, 5.25%, 1/2/97 (cost - $1,584,769).......... $ 1,584,769
-------
CONVERTIBLE CORPORATE NOTES - 1.1%
HONG KONG - .2%
BANKING - .2%
40,000 Bangkok Bank Public Co., 3.25%, 3/3/04............................. $ 39,150
-------
JAPAN - .9%
BANKING - .9%
130,000 Mitsubishi Bank Ltd., 3.50%, 11/30/02.............................. 138,450
-------
Total Convertible Corporate Notes (cost-$188,795).................. $ 177,600
-------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 87.2%
AUSTRALIA - .6%
PAPER PRODUCTS - .6%
17,000 WMC Ltd. .......................................................... $ 107,154
-------
AUSTRIA - .3%
AIRPORTS - .3%
900 Flughafen Wein AG.................................................. 45,879
-------
BERMUDA - 4.5%
INSURANCE - 4.5%
12,200 ACE Ltd. .......................................................... 733,525
800 EXEL Ltd. ......................................................... 30,300
-------
763,825
-------
BRAZIL - 1.5%
BANKING - .6%
6,000 Bompreco Supermecados Norde*....................................... 108,000
-------
PAPER PRODUCTS - .3%
6,200 Aracruz Celulose SA................................................ 51,150
-------
TEXTILES/APPAREL - .3%
150 Compahnia de Tecidos Norte de Minas-Conteminas..................... 47,870
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
90 Compahnia Cervejaria Brahma........................................ 49,196
-------
Total Brazilian Common Stocks...................................... 256,216
-------
CANADA - 2.1%
ELECTRONICS - .5%
11,000 CAE, Inc. ......................................................... 83,145
-------
</TABLE>
A-62
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
ENERGY - .6%
1,600 Precision Drilling Corp.*.......................................... $ 55,737
1,100 Suncor, Inc. ...................................................... 45,468
-------
101,205
-------
PRINTING/PUBLISHING - .3%
2,150 Thomson Corp. ..................................................... 47,261
-------
SECURITY/INVESTIGATION - .4%
3,500 Unican Security Systems Ltd. ...................................... 77,704
-------
TRANSPORTATION - .3%
1,875 Canadian Pacific Ltd. ............................................. 49,638
-------
Total Canadian Common Stocks....................................... 358,953
-------
CZECHOSLOVAKIA - .5%
TELECOMMUNICATIONS - .5%
700 SPT Telekom AS*.................................................... 87,149
-------
FINLAND - 1.7%
DRUGS/MEDICAL PRODUCTS - .3%
7,600 Oy Tamro AB........................................................ 50,722
-------
TELECOMMUNICATIONS - 1.4%
4,000 Oy Nokia AB........................................................ 231,304
-------
Total Finnish Common Stocks........................................ 282,026
-------
FRANCE - 3.5%
ELECTRONICS - .3%
1,159 Schneider SA....................................................... 53,589
-------
ENERGY - .7%
1,516 Total SA........................................................... 123,302
-------
INSURANCE - 1.1%
1,500 AXA................................................................ 95,404
2,400 Scor SA............................................................ 84,417
-------
179,821
-------
MANUFACTURING - .4%
1,356 Michelin (CGDE).................................................... 73,203
-------
MISCELLANEOUS FINANCIAL SERVICES - .1%
800 Compagnie Financiere de Paris...................................... 24,100
-------
POWER/UTILITIES - .5%
632 Compagnie Generale des Eaux........................................ 78,323
-------
</TABLE>
A-63
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
-------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
TECHNOLOGY - .4%
1,000 SGS-Thomson Microelectronics N.V.*................................. $ 70,733
-------
Total French Common Stocks......................................... 603,071
-------
GERMANY - 3.3%
CHEMICALS - .7%
900 SGL Carbon AG...................................................... 113,465
-------
COMPUTER SERVICES - .8%
1,000 SAP AG............................................................. 136,145
-------
CONSUMER PRODUCTS - .7%
1,300 Adidas AG.......................................................... 112,360
-------
DRUGS/MEDICAL PRODUCTS - .4%
1,150 Gehe AG............................................................ 73,613
-------
INSURANCE - .7%
160 Koelnische Rueckversicherungs AG................................... 119,574
-------
Total German Common Stocks......................................... 555,157
-------
HONG KONG - 1.4%
BANKING - .6%
180,000 Manhattan Credit Card Co., Ltd. ................................... 91,344
-------
CONSUMER PRODUCTS - .6%
280,000 Yue Yuen Industrial Holdings....................................... 106,794
-------
WHOLESALE - .2%
110,000 China Hong Kong Photo Products Holdings Ltd. ...................... 36,977
-------
Total Hong Kong Common Stocks...................................... 235,115
-------
HUNGARY - 1.0%
CONGLOMERATES - .5%
10,450 Benpres Holdings Corp.*............................................ 84,835
-------
DRUGS/MEDICAL PRODUCTS - .5%
1,550 Gedeon Richter Ltd., GDR........................................... 90,025
-------
Total Hungarian Common Stocks...................................... 174,860
-------
INDONESIA - .1%
WHOLESALE - .1%
15,000 PT Tigaraksa Satria................................................ 20,957
-------
ITALY - 1.6%
CONSUMER PRODUCTS - .8%
6,500 Bulgari S.p.A. .................................................... 131,971
-------
</TABLE>
A-64
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ITALY (CONTINUED)
TELECOMMUNICATIONS - .8%
32,000 Telecom Italia S.p.A. ............................................. $ 62,439
49,000 Telecom Italia Mobile S.p.A.*...................................... 69,931
-------
132,370
-------
Total Italian Common Stocks........................................ 264,341
-------
JAPAN - 9.5%
AUTOMOTIVE - 1.0%
6,000 Calsonic Corp. .................................................... 33,365
3,000 Honda Motor Co., Ltd. ............................................. 85,744
4,000 Murakami Corp. .................................................... 47,319
-------
166,428
-------
BANKING - .9%
600 Aeon Credit Service Co., Ltd. ..................................... 37,302
22,000 Daiwa Bank Ltd. ................................................... 114,930
-------
152,232
-------
BUILDING & CONSTRUCTION - .7%
3,000 Aoki Marine Co., Ltd. ............................................. 14,765
3,000 Maeda Corp. ....................................................... 22,200
1,000 Nichiei Co., Ltd. ................................................. 73,828
-------
110,793
-------
COMPUTER SERVICES - .2%
1,000 Konami Co., Ltd. .................................................. 34,107
-------
CONGLOMERATES - .2%
2,000 Inaba Denkisangyo Co. ............................................. 38,339
-------
CONSUMER PRODUCTS - .9%
7,000 Canon, Inc. ....................................................... 154,736
-------
ELECTRICAL ENGINEERING - .2%
3,100 Kinden Corp. ...................................................... 39,349
-------
ELECTRONICS - 2.5%
700 Kyocera Corp. ADR ................................................. 85,400
8,000 Mitsubishi Electric Corp. ......................................... 47,664
3,000 Omron Corp. ....................................................... 56,472
1,000 Rohm Co. .......................................................... 65,625
4,000 Sodick Co. ........................................................ 33,158
2,000 Sony Corp. ........................................................ 131,077
-------
419,396
-------
INSURANCE - .2%
9,000 Fuji Fire & Marine Insurance....................................... 33,650
-------
</TABLE>
A-65
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
MANUFACTURING - .2%
5,000 Japan Synthetic Rubber............................................. $ 32,812
-------
METALS/MINING - .6%
22,000 Sumitomo Metal Industries.......................................... 54,140
3,000 Toho Titanium*..................................................... 43,520
-------
97,660
-------
MISCELLANEOUS FINANCIAL SERVICES - .6%
2,000 Credit Saison Co., Ltd. ........................................... 44,728
300 Shohkoh Fund....................................................... 65,279
-------
110,007
-------
POWER/UTILITIES - .5%
4,000 Kyushu Electric Power.............................................. 77,714
-------
RETAIL - .4%
9,000 Maruetsu........................................................... 61,471
-------
SECURITY/INVESTIGATION - .2%
4,000 Toyo Tec Co. Ltd. ................................................. 38,339
-------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .2%
3,000 Mikuni Coca-Cola Bottling.......................................... 38,857
-------
Total Japanese Common Stocks....................................... 1,605,890
-------
LICHTENSTEIN - .2%
BANKING - .2%
65 Liechtenstein Global Trust AG...................................... 33,314
-------
MEXICO - .7%
BUILDING & CONSTRUCTION - .3%
11,000 Corporacion GEO, SA de CV*......................................... 54,217
-------
CONGLOMERATES - .4%
14,000 Alfa S.A. de CV*................................................... 64,647
-------
Total Mexican Common Stocks........................................ 118,864
-------
NETHERLANDS - 1.8%
BUILDING & CONSTRUCTION - .2%
800 Kondor Wessells Groep NV........................................... 32,389
-------
IMPORTING/EXPORTING - .4%
753 Hagemeyer NV....................................................... 60,231
-------
MISCELLANEOUS FINANCIAL SERVICES - .5%
2,478 ING Groep NV....................................................... 89,274
-------
</TABLE>
A-66
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS (CONTINUED)
PRINTING/PUBLISHING - .7%
5,800 Ver Ned Uitgevers.................................................. $ 121,274
-------
Total Netherlands Common Stocks.................................... 303,168
-------
NEW ZEALAND - .4%
FOOD SERVICES - .4%
160,392 AFFCO Holdings Ltd. ............................................... 70,303
-------
NORWAY - .5%
BANKING - .5%
12,700 Fokus Bank AS...................................................... 86,531
-------
SINGAPORE - .6%
PRINTING/PUBLISHING - .6%
5,000 Singapore Press Holdings Ltd. ..................................... 98,621
-------
SOUTH KOREA - .4%
TELECOMMUNICATIONS - .4%
5,150 Korea Mobile Telecom ADR........................................... 66,306
-------
SPAIN - 2.0%
BANKING - .6%
2,400 Corporacion Bancaria de Espana SA.................................. 107,406
-------
ENERGY - .7%
2,900 Repsol SA.......................................................... 111,242
-------
MANUFACTURING - .7%
1,800 Vidrala SA......................................................... 124,506
-------
Total Spanish Common Stocks........................................ 343,154
-------
SWEDEN - 3.4%
BANKING - .5%
2,700 Nordbanken AB*..................................................... 81,753
-------
DRUGS & MEDICAL PRODUCTS - .6%
1,900 ASTRA AB........................................................... 93,887
-------
MACHINERY/ENGINEERING - 1.7%
750 ABB AB............................................................. 84,679
6,500 Atlas Copco AB..................................................... 157,260
3,000 Kalmar Industries AB............................................... 49,927
-------
291,866
-------
PAPER PRODUCTS - .6%
3,750 AssiDoman AB....................................................... 104,474
-------
Total Swedish Common Stocks........................................ 571,980
-------
</TABLE>
A-67
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWITZERLAND - 3.1%
BANKING - .6%
1,050 CS Holding AG...................................................... $ 107,863
-------
BUILDING & CONSTRUCTION - .4%
100 Holderbank Financiere Glaris AG.................................... 71,423
-------
DRUGS & MEDICAL PRODUCTS - 1.7%
120 Ares-Serono Group.................................................. 114,486
150 NOVARTIS AG*....................................................... 171,797
-------
286,283
-------
MANUFACTURING - .4%
25 Sig Schweizerische Industrie - Gesellschaft Holding AG............. 63,317
-------
Total Swiss Common Stocks.......................................... 528,886
-------
THAILAND - .6%
WHOLESALE - .6%
24,000 Siam Makro Public Co., Ltd. ....................................... 105,747
-------
UNITED KINGDOM - 4.9%
AUTOMOTIVE - .6%
26,863 LucasVarity PLC*................................................... 102,399
-------
COMPUTER SERVICES - .4%
26,000 Amstrad PLC........................................................ 65,256
-------
ELECTRONICS - .9%
8,000 Siebe PLC.......................................................... 148,569
-------
MANUFACTURING - .3%
32,000 Bridon PLC......................................................... 55,371
-------
METALS/MINING - .4%
12,000 Antofagasta Holdings PLC........................................... 69,899
-------
MISCELLANEOUS FINANCIAL SERVICES - .8%
18,000 Lloyds TSB Group PLC............................................... 132,757
-------
RETAIL - 1.5%
13,116 Dixon Group PLC.................................................... 122,015
19,515 Safeway, Inc. ..................................................... 135,406
-------
257,421
-------
Total United Kingdom Common Stocks................................. 831,672
-------
UNITED STATES - 37.0%
AEROSPACE/DEFENSE - 6.3%
3,000 Lockheed Martin Corp. ............................................. 274,500
12,500 McDonnell Douglas Corp. ........................................... 800,000
-------
1,074,500
-------
</TABLE>
A-68
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
BANKING - 6.1%
4,000 Citicorp........................................................... $ 412,000
2,300 Wells Fargo & Co. ................................................. 620,425
-------
1,032,425
-------
BUILDING & CONSTRUCTION - .2%
2,000 Newport News Shipbuilding, Inc.*................................... 30,000
-------
CHEMICALS - 5.0%
5,000 du Pont (E.I.) de Nemours & Co. ................................... 471,875
4,000 Hercules, Inc. .................................................... 173,000
5,000 Monsanto Co. ...................................................... 194,375
-------
839,250
-------
CONGLOMERATES - 2.7%
10,000 Tenneco, Inc. ..................................................... 451,250
-------
CONSUMER PRODUCTS - 1.8%
11,000 Mattel, Inc. ...................................................... 305,250
-------
DRUGS & MEDICAL PRODUCTS - 2.0%
8,000 Becton, Dickinson & Co. ........................................... 347,000
-------
ENTERTAINMENT - .2%
2,000 Harrah's Entertainment, Inc.*...................................... 39,750
-------
FOOD SERVICES - 1.6%
6,000 McDonald's Corp. .................................................. 271,500
-------
METALS/MINING - .7%
4,000 Freeport McMoRan Copper & Gold (Class B)........................... 119,500
-------
MISCELLANEOUS FINANCIAL SERVICES - 3.9%
6,000 Federal Home Loan Mortgage Corp. .................................. 660,750
-------
PAPER PRODUCTS - .3%
1,100 Champion International, Inc. ...................................... 47,575
-------
RAILROADS - 1.4%
4,000 Union Pacific Corp. ............................................... 240,500
-------
TECHNOLOGY - 1.4%
1,000 Intel Corp. ....................................................... 130,938
4,000 National Semiconductor Corp.*...................................... 97,500
-------
228,438
-------
TELECOMMUNICATIONS - 2.4%
1,300 Loral Space & Communications*...................................... 23,888
30,000 Tele-Communications, Inc. (Class A)*............................... 391,875
-------
415,763
-------
</TABLE>
A-69
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
TRANSPORTATION - 1.0%
2,000 AMR Corp.*......................................................... $ 176,250
-----------
Total United States Common Stocks.................................. 6,279,701
-----------
Total Common Stocks (cost - $13,393,679)........................... $14,798,840
-----------
Total Investments (cost - $15,167,243)........................ 97.6% $16,561,209
Other Assets in Excess of Other Liabilities................... 2.4 411,279
----- -----------
Total Net Assets.............................................. 100.0% $16,972,488
===== ===========
</TABLE>
- ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-70
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $15,167,243)..................................... $16,561,209
Foreign currencies (cost - $339,499)........................................... 335,801
Receivable from investments sold............................................... 69,056
Receivable from fund shares sold............................................... 43,500
Dividends receivable........................................................... 10,619
Foreign withholding taxes reclaimable.......................................... 3,653
Interest receivable............................................................ 1,412
Other assets................................................................... 483
-----------
Total Assets................................................................. 17,025,733
-----------
LIABILITIES
Due to custodian............................................................... 19,178
Investment advisory fees payable............................................... 7,840
Payable for investments purchased.............................................. 3,696
Foreign withholding taxes payable.............................................. 418
Other payables and accrued expenses............................................ 22,113
-----------
Total Liabilities............................................................ 53,245
-----------
Total Net Assets............................................................. $16,972,488
===========
NET ASSETS
Par value ($.01 per share)..................................................... $ 12,826
Paid-in-capital in excess of par............................................... 15,567,305
Accumulated undistributed net investment income................................ 2,107
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies................................ 1,390,250
-----------
Total Net Assets............................................................. $16,972,488
===========
Fund shares outstanding........................................................ 1,282,602
-----------
Net asset value per share...................................................... $ 13.23
-----------
</TABLE>
See accompanying notes to financial statements.
A-71
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $8,706)....................... $ 126,858
Interest..................................................................... 59,746
----------
Total investment income................................................... 186,604
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)........................................... 71,811
Custodian fees (note 1G)..................................................... 59,592
Auditing, consulting and tax return preparation fees......................... 12,394
Transfer and dividend disbursing agent fees.................................. 9,147
Legal fees................................................................... 2,083
Reports and notices to shareholders.......................................... 1,592
Miscellaneous................................................................ 9,757
----------
Total operating expenses.................................................. 166,376
Less: Investment advisory fees waived (note 2A)........................... (37,689)
Less: Expense offset arrangement (note 1G)................................ (15,447)
----------
Net operating expenses............................................... 113,240
----------
Net investment income................................................ 73,364
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS -- NET
Net realized gain on investments............................................. 85,039
Net realized loss on foreign currency transactions........................... (6,772)
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies................................................................ 1,247,855
----------
Net realized gain (loss) and change in unrealized appreciation
(depreciation) on investments and translation of other assets and
liabilities denominated in foreign currencies............................ 1,326,122
----------
Net increase in net assets resulting from operations........................... $1,399,486
==========
</TABLE>
See accompanying notes to financial statements.
A-72
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 73,364 $ 12,301
Net realized gain on investments............................ 85,039 57,143
Net realized loss on foreign currency transactions.......... (6,772) (2,877)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies............. 1,247,855 142,395
----------- -----------
Net increase in net assets resulting from operations... 1,399,486 208,962
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (60,776) (8,174)
Net realized gains on investments........................... (89,998) (57,143)
----------- -----------
Total dividends and distributions to shareholders...... (150,774) (65,317)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 16,110,547 2,683,554
Reinvestment of dividends and distributions................. 150,774 65,317
Cost of shares redeemed..................................... (3,428,866) (1,195)
----------- -----------
Net increase in net assets from fund share
transactions......................................... 12,832,455 2,747,676
----------- -----------
Total increase in net assets...................... 14,081,167 2,891,321
NET ASSETS
Beginning of period......................................... 2,891,321 0
----------- -----------
End of period (including undistributed net investment income
of $2,107 and 4,127, respectively)........................ $16,972,488 $2,891,321
=========== ===========
SHARES ISSUED AND REDEEMED
Issued...................................................... 1,304,431 243,412
Issued in reinvestment of dividends and distributions....... 11,415 5,636
Redeemed.................................................... (282,190) (102)
----------- -----------
Net increase........................................... 1,033,656 248,946
=========== ===========
</TABLE>
- ---------------
(1) Commencement of operations.
See accompanying notes to financial statements.
A-73
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") (formerly Quest for Value Accumulation
Trust was organized on May 12, 1994 as a Massachusetts business trust and is
registered under the Investment Company Act of 1940 as amended, as a
diversified, open-end management investment company. The Trust is authorized to
issue an unlimited number of seven classes of shares of beneficial interest at
$.01 par value. The Trust is comprised of seven portfolios: the Equity
Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the Managed
Portfolio, the Bond Portfolio, the U.S. Government Income Portfolio and the
Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned (99%)
subsidiary of Oppenheimer Capital, serves as the Trust's investment adviser. The
Global Equity Portfolio, (the "Portfolio"), one of the Trust's seven portfolios,
commenced operations on March 1, 1995. The Trust is an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies and qualified pension and retirement plans. The following is a summary
of significant accounting policies consistently followed by the Portfolio in the
preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities listed on a U.S. or foreign stock exchange or traded
in the over-the-counter National Market System are valued each business day at
the last reported sale price; if there are no such reported sales, the
securities are valued at their last quoted bid price. Other securities traded
over-the-counter and not part of the National Market System are valued at the
last quoted bid price. Investment debt securities (other than short-term
obligations) are valued each business day by an independent pricing service
(approved by the Board of Trustees) using methods which include current market
quotations from a major market maker in the securities and trader-reviewed
"matrix" prices. Short-term debt securities having a remaining maturity of sixty
days or less are valued at amortized cost or amortized value, which approximates
market value. Any securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith by
the Board of Trustees. Investments in countries in which the Portfolio may
invest may involve certain considerations and risks not typically associated
with domestic investments as a result of, among others, the possibility of
future political and economic developments and the level of governmental
supervision and regulation of foreign securities markets.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of securities, the cost of securities sold has
been determined on the basis of identified cost. Dividend income and other
distributions are recorded on the ex-dividend date, except certain dividends or
other distributions from foreign securities which are recorded as soon as the
information is available after the ex-dividend date. Interest income is accrued
as earned.
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are included
in the Portfolio's Statement of Operations. Since the net assets of the
Portfolio are
A-74
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSLATION (CONTINUED)
presented at the foreign exchange rates and market prices at the close of the
period, the Portfolio does not isolate that portion of the results of operations
arising as a result of changes in the exchange rates from fluctuations arising
from changes in the market price of securities.
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with Federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their Federal tax-basis treatment: temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains, respectively. To the
extent distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as distributions of paid-
in-capital or tax return of capital.
The following table discloses the cumulative effect of differences
reclassified from accumulated net realized foreign currency loss and accumulated
net realized loss on investments to accumulated undistributed net investment
income:
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED NET ACCUMULATED NET UNDISTRIBUTED
REALIZED FOREIGN REALIZED LOSS NET INVESTMENT
CURRENCY LOSS ON INVESTMENTS INCOME
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
$9,649 $4,959 ($14,608)
</TABLE>
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all the applicable portfolios of
the Trust or another reasonable basis.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter.
The Adviser has agreed to waive that portion of the advisory fee necessary
to limit total operating expenses of the Portfolio to 1.25% (net of expense
offsets) of average daily net assets on an annual basis.
A-75
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1996 amounted to $41,242, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $4,563.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1996 purchases and sales of investment
securities, other than short-term securities, were $15,233,328 and $3,081,962,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $1,780,424, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $386,458 and net unrealized appreciation for Federal income tax purposes is
$1,393,966. Federal income tax cost basis of portfolio securities is $16,561,209
at December 31, 1996.
(5) SUBSEQUENT EVENT
Oppenheimer Financial Corp., a holding company, holds a one-third interest
in Oppenheimer Capital and Oppenheimer Capital, L.P., a Delaware limited
partnership whose units are traded on the New York Stock Exchange and of which
Oppenheimer Financial Corp. is the sole general partner, owns the remaining two-
thirds interest. On February 13, 1997, PIMCO Advisors L.P., a registered
investment adviser, signed a definitive agreement with Oppenheimer Group, Inc.
and its subsidiary Oppenheimer Financial Corp. for PIMCO Advisors L.P. and its
affiliate, Thomson Advisory Group, Inc., to acquire the one-third managing
general partner interest in Oppenheimer Capital and the 1.0% general partner
interest in Oppenheimer Capital L.P. The completion of the transaction is
subject to certain client, lender, IRS and other approvals.
A-76
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, 1995(1)
DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period................... $ 11.61 $ 10.00
----------- ----------
Income from investment operations:
Net investment income.................................. 0.04 0.05
Net realized gain (loss) and unrealized appreciation
(depreciation) on investments and translation of
other assets and liabilities denominated in foreign
currencies........................................... 1.70 1.83
----------- ----------
Total from investment operations..................... 1.74 1.88
----------- ----------
Dividends and distributions to shareholders:
Dividends to shareholders from net investment income... (0.05) (0.03)
Distributions to shareholders from net realized capital
gains................................................ (0.07) (0.24)
----------- ----------
Total dividends and distributions to shareholders.... (0.12) (0.27)
----------- ----------
Net asset value, end of period......................... $ 13.23 $ 11.61
=========== ==========
Total return(2)........................................ 15.0% 18.9%
=========== ==========
Net assets, end of period.............................. $16,972,488 $2,891,321
----------- ----------
Ratio of net operating expenses to average net
assets(5)............................................ 1.42%(3,4) 1.25%(6)
----------- ----------
Ratio of net investment income to average net
assets(5)............................................ 0.81%(3) 1.02%(6)
----------- ----------
Portfolio turnover rate................................ 40% 67%
----------- ----------
Average commission rate................................ $ 0.0254 --
----------- ----------
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Average net assets for the year ended December 31, 1996 were $9,072,948.
(4) Gross of expense offsets. (See note 1G in Notes to Financial Statements)
(5) During the periods presented above, the Adviser waived a portion or all of
its fees and assumed a portion of the Portfolio's operating expenses.
Additionally, for the year ended December 31, 1996, the Portfolio benefited
from an expense offset arrangement with its custodian bank. If such waivers,
assumptions and expense offsets had not been in effect, the ratios of net
operating expenses to average daily net assets and the ratios of net
investment income (loss) to average daily net assets would have been 1.83%
and 0.22%, respectively, for the year ended December 31, 1996, and 3.94.%
and (1.67)%, annualized, respectively, for the period March 1, 1995
(commencement of operations) to December 31, 1995.
(6) Annualized.
A-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust - Global Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Portfolio (one of
the seven portfolios constituting OCC Accumulation Trust, hereafter referred to
as the "Portfolio") at December 31, 1996, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year then ended and for the period March 1, 1995 (commencement of
operations) through December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 17, 1997
A-78
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - .9%
$ 240,000 Federal Home Loan Bank, 5.41%, 7/30/97(cost - $238,954).............. $ 238,954
----------
SHORT-TERM CORPORATE NOTES - 18.5%
AUTOMOTIVE - 3.3%
Ford Motor Credit Co.,
$ 150,000 5.51%, 7/15/97....................................................... $ 149,679
125,000 5.53%, 7/22/97....................................................... 124,597
555,000 5.54%, 7/22/97....................................................... 553,206
----------
827,482
----------
BANKING - 2.9%
745,000 Norwest Financial Inc., 5.53%, 7/14/97............................... 743,512
----------
MACHINERY/ENGINEERING - 3.4%
Deere (John) Capital Corp.,
180,000 5.51%, 7/17/97....................................................... 179,559
685,000 5.53%, 7/28/97....................................................... 682,159
----------
861,718
----------
MISCELLANEOUS FINANCIAL SERVICES - 4.5%
1,150,000 American Express Credit Corp., 5.51%, 7/17/97........................ 1,147,184
----------
TECHNOLOGY - 4.4%
1,100,000 IBM Credit Corp., 5.51%, 7/15/97..................................... 1,097,643
----------
Total Short-Term Corporate Notes (cost - $4,677,539)................. $ 4,677,539
----------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 80.3%
AEROSPACE/DEFENSE - 5.3%
8,000 Lockheed Martin Corp. ............................................... $ 828,500
7,494 McDonnell Douglas Corp. ............................................. 513,339
----------
1,341,839
----------
BANKING - 6.4%
6,556 Citicorp ............................................................ 790,408
3,033 Wells Fargo & Co. ................................................... 817,393
----------
1,607,801
----------
CHEMICALS - 3.3%
4,000 du Pont (E.I.) de Nemours & Co. ..................................... 251,500
7,698 Hercules, Inc. ...................................................... 368,542
4,910 Monsanto Co. ........................................................ 211,437
----------
831,479
----------
CONGLOMERATES - 2.6%
4,312 General Electric Co. ................................................ 281,897
8,500 Tenneco, Inc......................................................... 384,094
----------
665,991
----------
</TABLE>
A-79
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS - 2.0%
3,844 Avon Products, Inc. ................................................. $ 271,242
6,843 Mattel, Inc. ........................................................ 231,807
----------
503,049
----------
DRUGS & MEDICAL PRODUCTS - 2.8%
14,042 Becton, Dickinson & Co. ............................................. 710,876
----------
ELECTRONICS - 3.0%
4,038 Arrow Electronics, Inc.*............................................. 214,519
24,000 EG & G, Inc. ........................................................ 540,000
----------
754,519
----------
ENERGY - 1.1%
697 El Paso Natural Gas Co. ............................................. 38,335
4,996 Triton Energy Ltd.*.................................................. 228,879
----------
267,214
----------
FOOD SERVICES - 2.0%
10,500 McDonald's Corp. .................................................... 507,281
----------
HEALTH & HOSPITALS - 3.2%
27,750 Tenet Healthcare Corp.*.............................................. 820,359
----------
INSURANCE - 23.2%
16,700 ACE Ltd. ............................................................ 1,233,713
7,372 AFLAC, Inc. ......................................................... 348,327
1,262 American International Group, Inc. .................................. 188,511
12,000 Everest Reinsurance Holdings, Inc. .................................. 475,500
24,452 EXEL Ltd. ........................................................... 1,289,843
5,000 General Re Corp. .................................................... 910,000
10,000 Mid Ocean Ltd. ...................................................... 524,375
4,579 Progressive Corp. (Ohio)............................................. 398,373
13,000 RenaissanceRe Holdings Ltd. ......................................... 495,625
----------
5,864,267
----------
LEISURE - 2.3%
14,000 Carnival Corp. ...................................................... 577,500
----------
MACHINERY/ENGINEERING - 3.8%
9,000 Caterpillar, Inc. ................................................... 966,375
----------
MANUFACTURING - 4.1%
6,000 Armstrong World Industries, Inc. .................................... 440,250
17,560 LucasVarity Corp. PLC ADR............................................ 608,015
----------
1,048,265
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.3%
19,912 Countrywide Credit Industries, Inc. ................................. 621,006
20,620 Federal Home Loan Mortgage Corp. .................................... 708,812
----------
1,329,818
----------
</TABLE>
A-80
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PRINTING/PUBLISHING - 1.6%
11,000 Donnelley (R.R.) & Sons Co. ......................................... $ 402,875
----------
RETAIL - 2.2%
11,888 May Department Stores Co. ........................................... 561,708
----------
TELECOMMUNICATIONS - 2.7%
6,000 Sprint Corp. ........................................................ 315,750
25,000 Tele-Communications, Inc. (Class A)*................................. 371,875
----------
687,625
----------
TRANSPORTATION - 3.4%
4,300 AMR Corp.*........................................................... 397,750
16,000 Canadian Pacific Ltd................................................. 455,000
----------
852,750
----------
Total Common Stocks (cost - $14,087,737)............................. $20,301,591
----------
Total Investments (cost - $19,004,230).................... 99.7% $25,218,084
Other Assets in Excess of Liabilities..................... 0.3 74,626
----- -----------
Total Net Assets.......................................... 100.0% $25,292,710
===== ===========
</TABLE>
- - ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-81
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $19,004,230)...................................... $25,218,084
Cash............................................................................ 52,668
Dividends receivable............................................................ 20,848
Receivable from fund shares sold................................................ 14,368
Other assets.................................................................... 1,004
-----------
Total Assets.................................................................. 25,306,972
-----------
LIABILITIES
Investment advisory fee payable................................................. 1,667
Payable for fund shares redeemed................................................ 952
Other payables and accrued expenses............................................. 11,643
-----------
Total Liabilities............................................................. 14,262
-----------
Total Net Assets.............................................................. $25,292,710
===========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)...................................................... $ 7,716
Paid-in-capital in excess of par................................................ 18,627,928
Accumulated undistributed net investment income................................. 139,630
Accumulated undistributed net realized gain on investments...................... 303,582
Net unrealized appreciation on investments...................................... 6,213,854
-----------
Total Net Assets.............................................................. $25,292,710
===========
Fund shares outstanding......................................................... 771,634
-----------
Net asset value per share....................................................... $ 32.78
===========
</TABLE>
See accompanying notes to financial statements.
A-82
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................................... $ 149,752
Interest....................................................................... 97,795
----------
Total investment income..................................................... 247,547
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 86,822
Custodian fees (note 1G)....................................................... 7,528
Transfer and dividend disbursing agent fees.................................... 4,626
Audit fees..................................................................... 4,165
Trustees' fees and expenses.................................................... 2,203
Reports and notices to shareholders............................................ 1,937
Legal fees..................................................................... 1,091
Miscellaneous.................................................................. 246
----------
Total operating expenses.................................................... 108,618
Less: Expenses offset (note 1G)............................................. (701)
----------
Net operating expenses................................................. 107,917
----------
Net investment income.................................................. 139,630
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 303,581
Net change in unrealized appreciation (depreciation) on investments............ 2,471,711
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 2,775,292
----------
Net increase in net assets resulting from operations............................. $2,914,922
==========
</TABLE>
See accompanying notes to financial statements.
A-83
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 139,630 $ 188,895
Net realized gain on investments........................... 303,581 672,433
Net change in unrealized appreciation (depreciation) on
investments.............................................. 2,471,711 2,218,378
----------- ----------
Net increase in net assets resulting from
operations.......................................... 2,914,922 3,079,706
----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (188,895) (111,781)
Net realized gains......................................... (672,433) (223,969)
----------- ----------
Total dividends and distributions to shareholders..... (861,328) (335,750)
----------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 3,388,606 9,184,397
Reinvestment of dividends and distributions................ 861,328 335,750
Cost of shares redeemed.................................... (853,816) (1,457,087)
----------- ----------
Net increase in net assets from fund share
transactions........................................ 3,396,118 8,063,060
----------- ----------
Total increase in net assets..................... 5,449,712 10,807,016
NET ASSETS
Beginning of period........................................ 19,842,998 9,035,982
----------- ----------
End of period (including undistributed net investment
income of $139,630 and $188,895, respectively)........... $25,292,710 $19,842,998
=========== ==========
SHARES ISSUED AND REDEEMED
Issued..................................................... 111,055 339,540
Issued in reinvestment of dividends and distributions...... 28,807 13,029
Redeemed................................................... (28,038) (53,448)
----------- ----------
Net increase.......................................... 111,824 299,121
=========== ==========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-84
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust ( the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio (the "Portfolio"), the Small Cap Portfolio, the Global
Equity Portfolio, the Managed Portfolio, the U.S. Government Income Portfolio
and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Board of Trustees. The ability of issuers of debt instruments
to meet their obligations may be affected by economic developments in a specific
industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions are determined
in accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal income tax treatment; temporary
differences do
A-85
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
not require reclassification. To the extent dividends and/or distributions
exceed current and accumulated earnings and profits for Federal income tax
purposes, they are reported as dividends and/or distributions of paid-in-capital
or tax return of capital.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.00% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $4,820, of which Oppenheimer & Co., Inc., an affiliate
of the Adviser, received $1,518.
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities, were $2,006,683 and $1,828,102,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $6,214,033, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $179 and net unrealized appreciation for Federal income tax purposes is
$6,213,854. Federal income tax cost basis of portfolio securities is $19,004,230
at June 30, 1997.
A-86
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-87
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED -------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ----------- ---------- ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 30.07 $ 25.05 $ 18.12 $ 18.57
----------- ----------- ---------- ----------
Income from investment
operations:
Net investment income......... 0.18 0.21 0.31 0.09
Net realized and unrealized
gain (loss) on
investments................. 3.81 5.52 6.71 (0.54)
----------- ----------- ---------- ----------
Total from investment
operations............... 3.99 5.73 7.02 (0.45)
----------- ----------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from
net investment income....... (0.28) (0.24) (0.09) --
Distributions to shareholders
from net realized gains..... (1.00) (0.47) -- --
----------- ----------- ---------- ----------
Total dividends and
distributions to
shareholders............. (1.28) (0.71) (0.09) --
----------- ----------- ---------- ----------
Net asset value, end of
period...................... $ 32.78 $ 30.07 $ 25.05 $ 18.12
=========== =========== ========== ==========
Total return (2).............. 13.7% 23.4% 38.9% (2.4%)
=========== =========== ========== ==========
Net assets, end of period..... $ 25,292,710 $19,842,998 $9,035,982 $4,281,256
----------- ----------- ---------- ----------
Ratio of net operating
expenses to average net
assets (5).................. 1.00%(3,4) 0.93%(6) 0.72%(6) 0.72%(3,6)
----------- ----------- ---------- ----------
Ratio of net investment income
to average net assets....... 1.29%(3,4) 1.29%(6) 1.74%(6) 1.80%(3,6)
----------- ----------- ---------- ----------
Portfolio turnover rate....... 10% 36% 31% 6%
----------- ----------- ---------- ----------
Average commission rate....... $ 0.0566 $ 0.0588 -- --
----------- ----------- ---------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $21,885,297.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the
year ended December 31, 1996, 1.26% and 1.20%, respectively, for the year
ended December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
(7) Unaudited.
A-88
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTE - 1.1%
$ 675,000 Federal Home Loan Mortgage Corp., 5.40%, 8/7/97 (cost - $671,254).... $ 671,254
-----------
SHORT-TERM CORPORATE NOTES - 14.3%
AUTOMOTIVE - 2.8%
$1,630,000 Ford Motor Credit Co., 5.53%, 7/15/97................................ $ 1,626,495
-----------
INSURANCE - 3.1%
1,840,000 Prudential Funding Corp., 5.54%, 7/31/97............................. 1,831,505
-----------
MACHINERY/ENGINEERING - 2.9%
Deere (John) Capital Corp.,
240,000 5.40%, 7/3/97........................................................ 239,928
1,500,000 5.49%, 7/3/97........................................................ 1,499,542
-----------
1,739,470
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.3%
740,000 Beneficial Corp., 5.50%, 7/16/97..................................... 738,304
-----------
TECHNOLOGY - 4.2%
2,500,000 IBM Credit Corp., 5.51%, 7/15/97..................................... 2,494,643
-----------
Total Short-Term Corporate Notes (cost - $8,430,417)................. $ 8,430,417
-----------
CONVERTIBLE CORPORATE BOND - .1%
REAL ESTATE - .1%
$ 49,995 Security Capital Group, Inc., 12.00%, 6/30/14 (A) (cost - $45,368)... $ 60,161
-----------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 84.7%
ADVERTISING - .2%
18,000 Katz Media Group, Inc.*.............................................. $ 118,125
-----------
AEROSPACE/DEFENSE - 1.2%
28,800 Tracor, Inc.*........................................................ 723,600
-----------
AUTOMOTIVE - 1.9%
20,700 Borg-Warner Automotive, Inc. ........................................ 1,119,094
-----------
BUILDING & CONSTRUCTION - 2.6%
29,200 Chicago Bridge & Iron Co.*........................................... 646,050
17,800 Dal-Tile International, Inc.*........................................ 330,413
42,900 JLG Industries, Inc. ................................................ 584,512
-----------
1,560,975
-----------
CHEMICALS - 4.3%
47,100 McWhorter Technologies, Inc.*........................................ 1,124,513
57,200 Schulman (A.), Inc. ................................................. 1,408,550
-----------
2,533,063
-----------
</TABLE>
A-89
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
COMPUTER SERVICES - 4.1%
22,100 BA Merchants Services, Inc.*......................................... $ 421,281
46,367 BancTec, Inc.*....................................................... 1,202,644
17,500 BDM International, Inc.*............................................. 402,500
25,800 Reynolds & Reynolds Co. ............................................. 406,350
-----------
2,432,775
-----------
DRUGS & MEDICAL PRODUCTS - 4.4%
21,100 Dentsply International, Inc. ........................................ 1,033,900
44,700 SpaceLabs Medical, Inc.*............................................. 1,139,850
23,200 Vital Signs, Inc. ................................................... 407,450
-----------
2,581,200
-----------
ELECTRONICS - 5.8%
30,300 EG & G, Inc. ........................................................ 681,750
54,700 Exar Corp.*.......................................................... 1,176,050
33,620 Oak Industries, Inc.*................................................ 966,575
24,400 Watts Industries, Inc.*.............................................. 585,600
-----------
3,409,975
-----------
ENERGY - 5.5%
35,400 KCS Energy, Inc. .................................................... 721,275
22,100 Nuevo Energy Co.*.................................................... 906,100
45,100 St. Mary Land & Exploration Co. ..................................... 1,584,138
-----------
3,211,513
-----------
HEALTH & HOSPITALS - 3.4%
68,500 Magellan Health Services, Inc*....................................... 2,020,750
-----------
INSURANCE - 12.8%
66,600 Capsure Holdings Corp.*.............................................. 861,637
38,000 Corvel Corp.*........................................................ 1,092,500
22,422 Delphi Financial Group, Inc.*........................................ 863,247
57,000 E.W. Blanch Holdings, Inc. .......................................... 1,521,188
46,500 Gryphon Holdings, Inc. .............................................. 709,125
14,000 Horace Mann Educators Corp. ......................................... 686,000
23,300 RenaissanceRe Holdings Ltd. ......................................... 888,313
26,700 United Wisconsin Services, Inc. ..................................... 899,456
-----------
7,521,466
-----------
MACHINERY/ENGINEERING - 4.8%
28,100 Ametek, Inc. ........................................................ 660,350
29,400 Durco International, Inc. ........................................... 859,950
16,900 Kaydon Corp. ........................................................ 838,663
19,200 United Dominion Industries, Ltd. .................................... 471,600
-----------
2,830,563
-----------
</TABLE>
A-90
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MANUFACTURING - 9.0%
183,900 Baldwin Technology Co. (Class A)*.................................... $ 551,700
53,000 Easco, Inc........................................................... 516,750
18,800 Jostens, Inc......................................................... 502,900
32,700 Keystone International, Inc.......................................... 1,134,281
44,400 Lydall, Inc.*........................................................ 937,950
55,600 Omniquip International, Inc.*........................................ 1,285,750
7,300 Roper Industries, Inc................................................ 378,687
-----------
5,308,018
-----------
MEDIA/BROADCASTING - 1.7%
24,500 American Radio Systems Corp.*........................................ 976,938
-----------
MISCELLANEOUS FINANCIAL SERVICES - 3.6%
32,500 BISYS Group, Inc.*................................................... 1,356,875
17,100 Enhance Financial Services Group, Inc. .............................. 750,262
-----------
2,107,137
-----------
PAPER PRODUCTS - .7%
22,500 Rock-Tenn Co. ....................................................... 395,156
-----------
PRINTING/PUBLISHING - 6.8%
24,900 Bowne & Co., Inc. ................................................... 868,387
15,800 Harland (John. H.) Co. .............................................. 360,437
88,100 Hollinger International, Inc. ....................................... 985,619
82,400 International Imaging Materials, Inc.*............................... 1,339,000
5,700 Merrill Corp......................................................... 207,338
92,500 Nu-Kote Holdings, Inc. (Class A)*.................................... 231,250
-----------
3,992,031
-----------
REAL ESTATE - .1%
66 Security Capital Group, Inc. (A)..................................... 83,073
-----------
RETAIL - .8%
24,400 Ann Taylor Stores Corp.*............................................. 475,800
-----------
TECHNOLOGY - 5.4%
132,000 Auspex Systems, Inc.*................................................ 1,270,500
7,100 Cable Design Technologies*........................................... 209,006
78,800 Wang Laboratories, Inc.*............................................. 1,679,425
-----------
3,158,931
-----------
TELECOMMUNICATIONS - 2.4%
18,300 ACC Corp.*........................................................... 565,013
800 Plantronics, Inc.*................................................... 40,100
22,300 TCA Cable TV, Inc. .................................................. 839,037
-----------
1,444,150
-----------
</TABLE>
A-91
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TEXTILES/APPAREL - 2.2%
20,200 Burlington Industries, Inc.*......................................... $ 242,400
5,000 Guilford Mills, Inc.................................................. 104,062
23,500 Westpoint Stevens, Inc. (Class A)*................................... 919,438
-----------
1,265,900
-----------
TRANSPORTATION - 1.0%
41,350 Interpool, Inc....................................................... 609,913
-----------
Total Common Stocks (cost - $42,626,469)............................. $49,880,146
-----------
Total Investments (cost - $51,773,508)....................... 100.2% $59,041,978
Liabilities in Excess of Other Assets........................ (0.2) (93,309)
----- -----------
Total Net Assets............................................. 100.0% $58,948,669
===== ==========
</TABLE>
- - ---------------
* Non-income producing security.
(A) Restricted securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST JUNE 30, 1997
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14.......... 9/16/94 $49,995 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock............. 9/16/94 -- 66 949 1,259
</TABLE>
See accompanying notes to financial statements.
A-92
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $51,773,508)...................................... $59,041,978
Cash............................................................................ 7,817
Receivable from investments sold................................................ 390,380
Receivable from fund shares sold................................................ 103,946
Dividends receivable............................................................ 16,266
Interest receivable............................................................. 6,795
Other assets.................................................................... 1,406
-----------
Total Assets.................................................................. 59,568,588
-----------
LIABILITIES
Payable for investments purchased............................................... 589,999
Payable for fund shares redeemed................................................ 6,101
Investment advisory fee payable................................................. 3,808
Other payables and accrued expenses............................................. 20,011
-----------
Total Liabilities............................................................. 619,919
-----------
Total Net Assets.............................................................. $58,948,669
===========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)...................................................... $ 23,833
Paid-in-capital in excess of par................................................ 48,759,952
Accumulated undistributed net investment income................................. 129,800
Accumulated undistributed net realized gain on investments...................... 2,766,614
Net unrealized appreciation on investments...................................... 7,268,470
-----------
Total Net Assets.............................................................. $58,948,669
===========
Fund shares outstanding......................................................... 2,383,326
-----------
Net asset value per share....................................................... $ 24.73
===========
</TABLE>
See accompanying notes to financial statements.
A-93
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest....................................................................... $ 189,707
Dividends...................................................................... 153,844
----------
Total investment income..................................................... 343,551
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................. 172,578
Custodian fees (note 1G)....................................................... 15,699
Trustees' fees and expenses.................................................... 6,549
Transfer and dividend disbursing agent fees.................................... 4,751
Audit fees..................................................................... 4,413
Reports and notices to shareholders............................................ 4,136
Legal fees..................................................................... 1,560
Miscellaneous.................................................................. 4,891
----------
Total operating expenses.................................................... 214,577
Less: Expenses offset (note 1G)............................................. (826)
----------
Net operating expenses................................................. 213,751
----------
Net investment income.................................................. 129,800
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments............................................... 2,775,415
Net change in unrealized appreciation (depreciation) on investments............ 4,013,251
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments................................................................ 6,788,666
----------
Net increase in net assets resulting from operations............................. $6,918,466
==========
</TABLE>
See accompanying notes to financial statements.
A-94
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 129,800 $ 226,925
Net realized gain on investments........................... 2,775,415 1,679,412
Net change in unrealized appreciation (depreciation) on
investments.............................................. 4,013,251 2,142,715
----------- -----------
Net increase in net assets resulting from
operations.......................................... 6,918,466 4,049,052
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (226,925) (211,870)
Net realized gains......................................... (1,600,322) (544,700)
----------- -----------
Total dividends and distributions to shareholders..... (1,827,247) (756,570)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 20,049,793 17,604,938
Reinvestment of dividends and distributions................ 1,827,247 756,533
Cost of shares redeemed.................................... (2,276,261) (3,401,674)
----------- -----------
Net increase in net assets from fund share
transactions........................................ 19,600,779 14,959,797
----------- -----------
Total increase in net assets..................... 24,691,998 18,252,279
NET ASSETS
Beginning of period........................................ 34,256,671 16,004,392
----------- -----------
End of period (including undistributed net investment
income of $129,800 and $226,925, respectively)........... $58,948,669 $34,256,671
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 885,839 837,586
Issued in reinvestment of dividends and distributions...... 83,857 38,520
Redeemed................................................... (101,620) (164,530)
----------- -----------
Net increase.......................................... 868,076 711,576
=========== ===========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-95
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust ( the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global
Equity Portfolio, the Managed Portfolio, the U.S. Government Income Portfolio
and the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions are determined
in accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are
A-96
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reclassified within the capital accounts based on their Federal income tax
treatment; temporary differences do not require reclassification. To the extent
dividends and/or distributions exceed current and accumulated earnings and
profits for Federal income tax purposes, they are reported as dividends and/or
distributions of paid-in-capital or tax return of capital.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.00% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $80,508, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $20,686.
(3) PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities were $35,011,021 and $20,175,495,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $8,547,833, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $1,288,163, and net unrealized appreciation for Federal income tax purposes
is $7,259,670. Federal income tax cost basis of portfolio securities is
$51,782,308 at June 30, 1997.
A-97
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-98
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED --------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $ 22.61 $ 19.91 $ 17.38 $ 17.49
----------- ----------- ----------- ----------
Income from investment
operations:
Net investment income........ 0.03 0.14 0.26 0.06
Net realized and unrealized
gain (loss) on
investments................ 3.14 3.45 2.37 (0.17)
----------- ----------- ----------- ----------
Total from investment
operations.............. 3.17 3.59 2.63 (0.11)
----------- ----------- ----------- ----------
Dividends and distributions
to shareholders:
Dividends to shareholders
from net investment
income..................... (0.13) (0.25) (0.05) --
Distributions to shareholders
from net realized gains.... (0.92) (0.64) (0.05) --
----------- ----------- ----------- ----------
Total dividends and
distributions to
shareholders............ (1.05) (0.89) (0.10) --
----------- ----------- ----------- ----------
Net asset value, end of
period..................... $ 24.73 $ 22.61 $ 19.91 $ 17.38
=========== =========== =========== ==========
Total return (2)............. 14.6% 18.7% 15.2% (0.6%)
=========== =========== =========== ==========
Net assets, end of period.... $ 58,948,669 $34,256,671 $16,004,392 $ 9,210,443
----------- ----------- ----------- ----------
Ratio of net operating
expenses to average net
assets (5)................. 0.99%(3,4) 0.93%(6) 0.74%(6) 0.74%(3,6)
----------- ----------- ----------- ----------
Ratio of net investment
income to average net
assets..................... 0.60%(3,4) 1.03%(6) 1.75%(6) 1.22%(3,6)
----------- ----------- ----------- ----------
Portfolio turnover rate...... 54% 50% 69% 32%
----------- ----------- ----------- ----------
Average commission rate...... $ 0.0544 $ 0.0493 -- --
----------- ----------- ----------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $43,502,064.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been, 1.01% and 0.92%, respectively, for the
year ended December 31, 1996, 0.99% and 1.50%, respectively, for the year
ended December 31, 1995 and 1.64% and 0.32%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
(7) Unaudited.
A-99
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 1.4%
Federal Home Loan Bank,
$ 525,000 5.36%, 7/1/97....................................................... $ 525,000
1,245,000 5.40%, 7/24/97...................................................... 1,240,705
2,190,000 5.40%, 8/7/97....................................................... 2,177,845
------------
Total U.S. Government Agency Notes (cost - $3,943,550).............. $ 3,943,550
------------
SHORT-TERM CORPORATE NOTES - 22.8%
AUTOMOTIVE - 1.8%
Ford Motor Credit Co.,
$4,445,000 5.53%, 7/31/97...................................................... $ 4,424,516
590,000 5.54%, 7/31/97...................................................... 587,276
------------
5,011,792
------------
BANKING - 4.3%
12,295,000 Norwest Financial Inc., 5.53%, 7/14/97.............................. 12,270,447
------------
CONGLOMERATES - 4.0%
11,400,000 General Electric Capital Corp., 5.54%, 7/31/97...................... 11,347,370
------------
MACHINERY/ENGINEERING - 2.9%
Deere (John) Capital Corp.,
4,830,000 5.45%, 7/3/97....................................................... 4,828,538
2,010,000 5.49%, 7/3/97....................................................... 2,009,387
1,390,000 5.53%, 7/28/97...................................................... 1,384,235
------------
8,222,160
------------
MISCELLANEOUS FINANCIAL SERVICES - 8.9%
10,000,000 American Express Credit Corp., 5.54%, 7/29/97....................... 9,956,911
5,380,000 Household Finance Corp., 5.50%, 7/14/97............................. 5,369,315
9,940,000 Merrill Lynch & Co., Inc., 5.55%, 7/21/97........................... 9,909,352
------------
25,235,578
------------
TECHNOLOGY - .9%
IBM Credit Corp.,
675,000 5.50%, 7/15/97...................................................... 673,556
1,810,000 5.51%, 7/15/97...................................................... 1,806,122
------------
2,479,678
------------
Total Short-Term Corporate Notes (cost - $64,567,025)............... $ 64,567,025
------------
U.S. TREASURY NOTES AND BONDS - .6%
$ 700,000 6.25%, 8/15/23...................................................... $ 648,046
630,000 7.875%, 4/15/98..................................................... 640,237
297,500 7.875%, 8/15/01..................................................... 313,538
------------
Total U.S. Treasury Notes and Bonds (cost - $1,512,217)............. $ 1,601,821
------------
</TABLE>
A-100
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ------------
<C> <S> <C>
CONVERTIBLE CORPORATE BOND - .2%
REAL ESTATE - .2%
$ 614,371 Security Capital Group, Inc., 12.00%, 6/30/14 (A)
(cost - $557,508)................................................... $ 739,294
------------
SHARES
- - ----------
CONVERTIBLE PREFERRED STOCK - .0%
RETAIL - .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd. (cost - $102,527)............ $ 39,029
------------
COMMON STOCKS - 78.2%
AEROSPACE/DEFENSE - 6.8%
60,000 Lockheed Martin Corp. .............................................. $ 6,213,750
190,000 McDonnell Douglas Corp. ............................................ 13,015,000
------------
19,228,750
------------
BANKING - 11.8%
90,000 BankBoston Corp. ................................................... 6,485,625
97,000 Citicorp ........................................................... 11,694,562
10,400 First Empire State Corp. ........................................... 3,504,800
44,000 Wells Fargo & Co. .................................................. 11,858,000
------------
33,542,987
------------
CHEMICALS - 7.6%
210,000 du Pont (E.I.) de Nemours & Co. .................................... 13,203,750
100,000 Hercules, Inc. ..................................................... 4,787,500
80,000 Monsanto Co. ....................................................... 3,445,000
------------
21,436,250
------------
COMPUTER SERVICES - 1.0%
50,000 Computer Associates International Inc. ............................. 2,784,375
------------
CONGLOMERATES - 3.2%
200,000 Tenneco, Inc........................................................ 9,037,500
------------
CONSUMER PRODUCTS - 3.9%
325,200 Mattel, Inc. ....................................................... 11,016,150
------------
DRUGS & MEDICAL PRODUCTS - 2.3%
130,000 Becton, Dickinson & Co.............................................. 6,581,250
------------
ENERGY - 1.3%
70,000 Triton Energy Ltd.*................................................. 3,206,875
20,000 Union Pacific Resources Group, Inc.................................. 497,500
------------
3,704,375
------------
FOOD SERVICES - 3.6%
210,000 McDonald's Corp..................................................... 10,145,625
------------
</TABLE>
A-101
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE - 5.0%
74,700 ACE Ltd............................................................. $ 5,518,462
138,600 EXEL Ltd............................................................ 7,311,150
15,400 Transamerica Corp................................................... 1,440,863
------------
14,270,475
------------
MACHINERY/ENGINEERING - 4.2%
110,000... Caterpillar, Inc.................................................... 11,811,250
------------
METALS & MINING - 2.0%
182,300 Freeport McMoRan Copper & Gold (Class B)............................ 5,674,088
------------
MISCELLANEOUS FINANCIAL SERVICES - 10.1%
70,000 American Express Co. ............................................... 5,215,000
130,000 Countrywide Credit Industries, Inc. ................................ 4,054,375
355,000 Federal Home Loan Mortgage Corp. ................................... 12,203,125
160,600 Federal National Mortgage Assoc. ................................... 7,006,175
------------
28,478,675
------------
PAPER PRODUCTS - 2.9%
150,000 Champion International Corp. ....................................... 8,287,500
------------
PRINTING/PUBLISHING - .3%
25,000 Donnelley (R.R.) & Sons Co. ........................................ 915,625
------------
RAILROADS - 2.1%
85,000 Union Pacific Corp. ................................................ 5,992,500
------------
REAL ESTATE - .4%
811 Security Capital Group, Inc. (A).................................... 1,020,796
------------
TECHNOLOGY - 5.0%
38,900 Intel Corp. ........................................................ 5,516,506
206,400 National Semiconductor Corp.*....................................... 6,321,000
48,000 Unitrode Corp.*..................................................... 2,418,000
------------
14,255,506
------------
TELECOMMUNICATIONS - 4.2%
800,000 Tele-Communications, Inc. (Class A)*................................ 11,900,000
------------
</TABLE>
A-102
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- ------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
WASTE DISPOSAL - .5%
47,818 Waste Management Inc. .............................................. $ 1,536,153
------------
Total Common Stocks (cost - $157,878,096)........................... $221,619,830
------------
Total Investments (cost - $228,560,923)................ 103.2% $292,510,549
Liabilities in Excess of Other Assets.................. (3.2) (9,104,888)
----- ------------
Total Net Assets....................................... 100.0% $283,405,661
===== ============
</TABLE>
- - ---------------
* Non-income producing security.
(A) Restricted Securities (the Portfolio will not bear any costs, including
those involved in registration under the Securities Act of 1933, in
connection with the disposition of these securities):
<TABLE>
<CAPTION>
DATE OF PAR AVERAGE FAIR VALUE AS OF
DESCRIPTION ACQUISITION AMOUNT SHARES COST JUNE 30, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Capital Group, Inc. 12.00%, 6/30/14..... 9/16/94 $614,371 -- $ 91 $ 120
Security Capital Group, Inc. Common Stock........ 9/16/94 -- 811 949 1,259
</TABLE>
See accompanying notes to financial statements.
A-103
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $228,560,923).................................... $292,510,549
Cash........................................................................... 20,234
Receivable from fund shares sold............................................... 154,952
Interest receivable............................................................ 119,182
Dividends receivable........................................................... 101,991
Other assets................................................................... 4,301
------------
Total Assets................................................................. 292,911,209
------------
LIABILITIES
Payable for investments purchased.............................................. 9,303,187
Payable for fund shares redeemed............................................... 136,128
Investment advisory fee payable................................................ 18,581
Other payables and accrued expenses............................................ 47,652
------------
Total Liabilities............................................................ 9,505,548
------------
Total Net Assets............................................................. $283,405,661
============
COMPOSITION OF NET ASSETS
Par value ($.01 per share)..................................................... $ 71,753
Paid-in-capital in excess of par............................................... 213,136,971
Accumulated undistributed net investment income................................ 1,561,847
Accumulated undistributed net realized gain on investments..................... 4,685,464
Net unrealized appreciation on investments..................................... 63,949,626
------------
Total Net Assets............................................................. $283,405,661
============
Fund shares outstanding........................................................ 7,175,255
------------
Net asset value per share...................................................... $ 39.50
============
</TABLE>
See accompanying notes to financial statements.
A-104
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends..................................................................... $ 1,298,226
Interest...................................................................... 1,254,905
-----------
Total investment income.................................................... 2,553,131
-----------
OPERATING EXPENSES
Investment advisory fees (note 2A)............................................ 888,578
Reports and notices to shareholders........................................... 20,179
Custodian fees (note 1G)...................................................... 20,146
Trustees' fees and expenses................................................... 12,767
Audit fees.................................................................... 8,889
Transfer and dividend disbursing agent fees................................... 5,782
Legal fees.................................................................... 4,699
Miscellaneous................................................................. 30,941
-----------
Total operating expenses................................................... 991,981
Less: Expenses offset (note 1G)............................................ (698)
-----------
Net operating expenses................................................ 991,283
-----------
Net investment income................................................. 1,561,848
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized gain on investments.............................................. 4,685,469
Net change in unrealized appreciation (depreciation) on investments........... 24,338,046
-----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments............................................................... 29,023,515
-----------
Net increase in net assets resulting from operations............................ $30,585,363
===========
</TABLE>
See accompanying notes to financial statements.
A-105
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 1,561,848 $ 2,161,819
Net realized gain on investments............................ 4,685,469 6,639,637
Net change in unrealized appreciation (depreciation) on
investments............................................... 24,338,046 18,285,659
------------ ------------
Net increase in net assets resulting from operations... 30,585,363 27,087,115
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (2,161,819) (1,378,070)
Net realized gains.......................................... (6,639,642) (878,874)
------------ ------------
Total dividends and distributions to shareholders...... (8,801,461) (2,256,944)
------------ ------------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 82,323,735 79,297,599
Reinvestment of dividends and distributions................. 8,801,461 2,256,944
Cost of shares redeemed..................................... (10,231,531) (24,844,767)
------------ ------------
Net increase in net assets from fund share
transactions......................................... 80,893,665 56,709,776
------------ ------------
Total increase in net assets...................... 102,677,567 81,539,947
NET ASSETS
Beginning of period......................................... 180,728,094 99,188,147
------------ ------------
End of period (including undistributed net investment income
of $1,561,847 and $2,161,818, respectively)............... $283,405,661 $ 180,728,094
============ ============
SHARES ISSUED AND REDEEMED
Issued...................................................... 2,214,230 2,403,077
Issued in reinvestment of dividends and distributions....... 243,943 73,016
Redeemed.................................................... (274,288) (775,472)
------------ ------------
Net increase........................................... 2,183,885 1,700,621
============ ============
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-106
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio (the "Portfolio"), the U.S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Board of Trustees. The ability of issuers of debt instruments
to meet their obligations may be affected by economic developments in a specific
industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions are determined
in accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are
A-107
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(D) DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reclassified within the capital accounts based on their Federal income tax
treatment; temporary differences do not require reclassification. To the extent
dividends and/or distributions exceed current and accumulated earnings and
profits for Federal income tax purposes, they are reported as dividends and/or
distributions of paid-in-capital or tax return of capital.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.00% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $64,187, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $24,908.
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities, were $51,856,834 and $13,672,297,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $64,137,022, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $187,396 and net unrealized appreciation for Federal income tax purposes is
$63,949,626. Federal income tax cost basis of portfolio securities is
$228,560,923 at June 30, 1997.
A-108
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-109
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ----------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $ 36.21 $ 30.14 $ 20.83 $ 21.80
------------ ------------ ----------- -----------
Income from investment
operations:
Net investment income........ 0.18 0.43 0.42 0.14
Net realized and unrealized
gain (loss) on
investments................ 4.73 6.31 9.02 (1.11)
------------ ------------ ----------- -----------
Total from investment
operations.............. 4.91 6.74 9.44 (0.97)
------------ ------------ ----------- -----------
Dividends and distributions
to shareholders:
Dividends to shareholders
from net investment
income..................... (0.40) (0.41) (0.13) --
Distributions to shareholders
from net realized gains.... (1.22) (0.26) -- --
------------ ------------ ----------- -----------
Total dividends and
distributions to
shareholders............ (1.62) (0.67) (0.13) --
------------ ------------ ----------- -----------
Net asset value, end of
period..................... $ 39.50 $ 36.21 $ 30.14 $ 20.83
============ ============ =========== ===========
Total return (2)............. 14.0% 22.8% 45.6% (4.4%)
============ ============ =========== ===========
Net assets, end of period.... $283,405,661 $180,728,094 $ 99,188,147 $54,943,371
------------ ------------ ----------- -----------
Ratio of net operating
expenses to average net
assets (5)................. 0.89%(3,4) 0.84%(6) 0.66%(6) 0.66%(3,6)
------------ ------------ ----------- -----------
Ratio of net investment
income to average net
assets..................... 1.41%(3,4) 1.66%(6) 1.85%(6) 2.34%(3,6)
------------ ------------ ----------- -----------
Portfolio turnover rate...... 7% 27% 22% 8%
------------ ------------ ----------- -----------
Average commission rate...... $ 0.0574 $ 0.0592 -- --
------------ ------------ ----------- -----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $223,985,374.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees. If
such waivers had not been in effect, the ratios of net operating expenses to
average net assets and the ratios of net investment income to average net
assets would have been, 0.85% and 1.65%, respectively, for the year ended
December 31, 1996, 0.74% and 1.77%, respectively, for the year ended
December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31, 1994.
(7) Unaudited.
A-110
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - --------- ----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 19.8%
$ 80,000 Federal Farm Credit Bank, 5.18%, 10/17/97.......................... $ 78,757
960,000 Federal Home Loan Bank, 6.00%, 7/1/97.............................. 960,000
----------
Total U.S. Government Agency Notes (amortized cost - $1,038,757)... $1,038,757
----------
SHORT-TERM CORPORATE NOTES - 80.5%
AUTOMOTIVE - 9.1%
$ 150,000 American Honda Finance Corp., 5.58%, 7/24/97....................... $ 149,465
170,000 Ford Motor Credit Co., 5.58%, 9/8/97............................... 168,182
160,000 General Motors Acceptance Corp., 5.56%, 8/25/97.................... 158,641
----------
476,288
----------
BANKING - 8.6%
100,000 Morgan (J.P.) & Co., Inc., 5.50%, 7/23/97.......................... 99,664
150,000 Svenska Handelsbanken Inc., 5.60%, 7/1/97.......................... 150,000
200,000 UBS Finance Delaware, Inc., 5.52%, 7/14/97......................... 199,601
----------
449,265
----------
BROKERAGE - 5.6%
150,000 Goldman Sachs Group, L.P., 5.62%, 9/2/97........................... 148,525
150,000 Morgan Stanley Group, Inc., 5.56%, 8/11/97......................... 149,050
----------
297,575
----------
CONGLOMERATES - 6.8%
190,000 General Electric Capital Corp., 5.56%, 10/27/97.................... 186,537
175,000 Mitsubishi International, 5.60%, 7/28/97........................... 174,265
----------
360,802
----------
ENTERTAINMENT - 3.8%
200,000 Walt Disney Co., 5.48%, 7/7/97..................................... 199,817
----------
INSURANCE - 5.8%
120,000 Aetna Services Inc., 5.62% 7/7/97.................................. 119,888
185,000 Prudential Funding Corp., 5.53%, 7/16/97........................... 184,574
----------
304,462
----------
MACHINERY/ENGINEERING - 5.6%
140,000 Deere (John) Capital Corp., 5.54%, 9/15/97......................... 138,363
160,000 Pitney Bowes Credit Corp., 5.65%, 10/1/97.......................... 157,690
----------
296,053
----------
</TABLE>
A-111
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - --------- ----------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 11.4%
$ 160,000 American Express Credit Corp., 5.56%, 7/7/97....................... $ 159,852
160,000 Associates Corp. N.A., 5.55%, 8/11/97.............................. 158,988
110,000 Beneficial Corp., 5.31%, 7/14/97................................... 109,789
170,000 Household Finance Corp., 5.52%, 7/18/97............................ 169,557
----------
598,186
----------
SOVEREIGN - 3.4%
180,000 Eksportfinans A/S, 5.60%, 8/29/97.................................. 178,348
----------
TECHNOLOGY - 6.5%
185,000 IBM Credit Corp., 5.54%, 8/18/97................................... 183,633
160,000 Motorola Credit Corp., 5.50%, 7/24/97.............................. 159,438
----------
343,071
----------
TELECOMMUNICATIONS - 8.2%
110,000 American Telephone & Telegraph Co., 5.52%, 7/28/97................. 109,544
120,000 Ameritech Corp., 5.50%, 7/14/97.................................... 119,762
200,000 BellSouth Telecommunications Inc., 5.47%, 7/2/97................... 199,970
----------
429,276
----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - 5.7%
120,000 Coca Cola Co., 5.40%, 7/29/97...................................... 119,491
180,000 PepsiCo Inc., 5.47%, 7/2/97........................................ 179,973
----------
299,464
----------
Total Short-Term Corporate Notes (amortized cost - $4,232,607)..... $4,232,607
----------
Total Investments (amortized cost - $5,271,364)............ 100.3% $5,271,364
Liabilities in Excess of Other Assets...................... (0.3) (17,639)
----- ----------
Total Net Assets........................................... 100.0% $5,253,725
===== =========
</TABLE>
See accompanying notes to financial statements.
A-112
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost - $5,271,364).............................. $5,271,364
Cash............................................................................. 5,443
Other assets..................................................................... 585
----------
Total Assets................................................................... 5,277,392
----------
LIABILITIES
Dividends payable................................................................ 7,460
Payable for fund shares redeemed................................................. 2,614
Investment advisory fee payable.................................................. 173
Other payables and accrued expenses.............................................. 13,420
----------
Total Liabilities.............................................................. 23,667
----------
Total Net Assets............................................................... $5,253,725
==========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)....................................................... $ 52,537
Paid-in-capital in excess of par................................................. 5,201,207
Accumulated net realized loss on investments..................................... (19)
----------
Total Net Assets............................................................... $5,253,725
==========
Fund shares outstanding.......................................................... 5,253,743
----------
Net asset value per share........................................................ $ 1.00
==========
</TABLE>
See accompanying notes to financial statements.
A-113
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $129,999
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 9,477
Custodian fees (note 1G)........................................................ 4,686
Transfer and dividend disbursing agent fees..................................... 4,527
Audit fees...................................................................... 3,873
Legal fees...................................................................... 955
Reports and notices to shareholders............................................. 612
Miscellaneous................................................................... 2,820
--------
Total operating expenses..................................................... 26,950
Less: Investment advisory fees waived (note 2)............................... (3,439)
Less: Expenses offset (note 1G).............................................. (208)
--------
Net operating expenses.................................................. 23,303
--------
Net investment income................................................... 106,696
--------
REALIZED LOSS ON INVESTMENTS - NET
Net realized loss on investments................................................ (6)
--------
Net increase in net assets resulting from operations.............................. $106,690
========
</TABLE>
See accompanying notes to financial statements.
A-114
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income...................................... $ 106,696 $ 181,416
Net realized loss on investments........................... (6) (14)
----------- -----------
Net increase in net assets resulting from
operations.......................................... 106,690 181,402
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................................... (106,696) (181,416)
Net realized gains......................................... -- (46)
----------- -----------
Total dividends and distributions to shareholders..... (106,696) (181,462)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................... 2,103,920 6,146,104
Reinvestment of dividends and distributions................ 99,926 182,704
Cost of shares redeemed.................................... (2,229,157) (5,405,790)
----------- -----------
Net increase (decrease) in net assets from fund share
transactions........................................ (25,311) 923,018
----------- -----------
Total increase (decrease) in net assets.......... (25,317) 922,958
NET ASSETS
Beginning of period........................................ 5,279,042 4,356,084
----------- -----------
End of period (including undistributed net investment
income of $0 and $0, respectively)....................... $ 5,253,725 $ 5,279,042
=========== ===========
SHARES ISSUED AND REDEEMED
Issued..................................................... 2,103,920 6,146,104
Issued in reinvestment of dividends and distributions...... 99,926 182,704
Redeemed................................................... (2,229,157) (5,405,790)
----------- -----------
Net increase (decrease)............................... (25,311) 923,018
=========== ===========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-115
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust ( the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the U.S. Government Income Portfolio and the Money Market
Portfolio ("the Portfolio"). OpCap Advisors (the "Adviser"), a majority-owned (
99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Portfolio securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at cost on
the date of purchase and thereafter assuming a constant dollar amortization to
maturity of the difference between the principal amount due at maturity and the
initial cost of the security.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required. Federal income tax cost basis of
portfolio securities is the same as for financial reporting purposes.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A-116
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is payable monthly to the Adviser, and is
computed as a percentage of the Portfolio's net assets as of the close of
business each day at the annual rate of .40%. The Adviser has agreed to waive
that portion of the advisory fee necessary to limit total operating expenses of
the Portfolio to 1.00% (net of expenses offset) of average net assets on an
annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales/maturities of
investment securities, were $24,904,984 and $25,044,398, respectively.
(4) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-117
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ------------------------- SEPTEMBER 16, 1994(1)
JUNE 30, 1997(7) 1996 1995 TO DECEMBER 31, 1994
---------------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income.......... 0.02 0.04 0.05 0.01
Net realized gain (loss) on
investments.................. (0.00) (0.00) 0.00 --
---------- ---------- ---------- ----------
Total from investment
operations................ 0.02 0.04 0.05 0.01
---------- ---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from
net investment income........ (0.02) (0.04) (0.05) (0.01)
Distributions to shareholders
from net realized gains...... -- (0.00) -- --
---------- ---------- ---------- ----------
Total dividends and
distributions to
shareholders.............. (0.02) (0.04) (0.05) (0.01)
---------- ---------- ---------- ----------
Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total return (2)............... 2.3% 4.5% 5.1% 1.2%
========== ========== ========== ==========
Net assets, end of period...... $5,253,725 $5,279,042 $4,356,084 $ 3,519,526
---------- ---------- ---------- ----------
Ratio of net operating expenses
to average net assets
(5,6)........................ 0.99%(3,4) 1.01% 1.00% 1.00%(3)
---------- ---------- ---------- ----------
Ratio of net investment income
to average net assets (6).... 4.50%(3,4) 4.43% 4.94% 4.13%(3)
---------- ---------- ---------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $4,777,776.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.14% and 4.36%, annualized,
respectively, for the six months ended June 30, 1997, 1.30% and 4.13%,
respectively, for the year ended December 31, 1996, 1.14% and 4.80%,
respectively, for the year ended December 31, 1995 and 2.03% and 3.10%,
annualized, respectively, for the period September 16, 1994 (commencement of
operations) to December 31, 1994.
(7) Unaudited.
A-118
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ----------
<C> <S> <C> <C>
U.S. TREASURY NOTES - 49.1%
$ 300,000 5.75%, 8/15/03..................................................... $ 289,686
480,000 5.875%, 1/31/99.................................................... 479,025
1,100,000 6.00%, 9/30/98..................................................... 1,101,199
650,000 6.25%, 4/30/01..................................................... 648,173
620,000 6.50%, 10/15/06.................................................... 617,384
125,000 7.25%, 5/15/04..................................................... 130,293
----------
Total U.S. Treasury Notes (cost - $3,250,869)...................... $3,265,760
----------
U.S. GOVERNMENT AGENCY NOTES - 28.8%
Federal Farm Credit Bank,
$ 25,000 5.41%, 7/2/97...................................................... $ 24,996
75,000 8.65%, 10/1/99..................................................... 78,633
Federal Home Loan Bank,
100,000 8.09%, 12/28/04.................................................... 107,937
155,000 8.60%, 8/25/99..................................................... 162,265
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03..................................................... 171,747
300,000 7.71%, 6/21/04..................................................... 303,984
125,000 7.75%, 11/7/01..................................................... 130,546
150,000 8.115%, 1/31/05.................................................... 161,788
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98.................................................... 59,672
150,000 9.20%, 9/11/00..................................................... 162,070
150,000 Private Export Funding Corp., 9.10%, 10/30/98........................ 155,601
Student Loan Marketing Assoc.,
75,000 7.00%, 3/3/98...................................................... 75,563
100,000 7.20%, 11/9/00..................................................... 102,328
Tennessee Valley Authority,
150,000 6.00%, 11/1/00..................................................... 147,962
65,000 8.375%, 10/1/99.................................................... 67,783
----------
Total U.S. Government Agency Notes (cost - $1,906,262)............. $1,912,875
----------
</TABLE>
A-119
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- ----------
<C> <S> <C> <C>
MORTGAGE-RELATED SECURITIES - 13.6%
Federal National Mortgage Assoc.,
$ 173,804 6.50%, 5/1/26...................................................... $ 166,363
182,890 7.00%, 1/1/10...................................................... 183,403
146,602 8.00%, 8/1/24...................................................... 150,175
115,003 8.00%, 12/1/24..................................................... 118,056
7,502 9.00%, 8/1/02...................................................... 7,778
17,538 9.50%, 12/1/06..................................................... 18,307
40,110 9.50%, 3/1/19...................................................... 43,180
72,407 9.50%, 12/1/19..................................................... 77,814
133,808 Government National Mortgage Assoc., 8.50%, 3/15/25.................. 139,117
----------
Total Mortgage-Related Securities (cost - $889,581)................ $ 904,193
----------
CORPORATE NOTES - 6.9%
CONGLOMERATES - 1.6%
$ 100,000 General Electric Capital Corp., 8.375%, 3/1/01....................... $ 105,481
----------
MISCELLANEOUS FINANCIAL SERVICES - 5.3%
125,000 Associates Corp., N.A., 5.25%, 3/30/00............................... 120,928
125,000 International Lease Finance Corp., 6.125%, 11/1/99................... 124,060
100,000 Lehman Brothers Holdings, Inc., 8.50%, 5/1/07........................ 107,652
----------
352,640
----------
Total Corporate Notes (cost - $451,722)............................ $ 458,121
----------
Total Investments (cost - $6,498,434)....................... 98.4% $6,540,949
Other Assets in Excess of Liabilities....................... 1.6 106,978
----- ----------
Total Net Assets............................................ 100.0% $6,647,927
===== ==========
</TABLE>
See accompanying notes to financial statements.
A-120
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $6,498,434)........................................ $6,540,949
Cash............................................................................. 27,445
Interest receivable.............................................................. 96,672
Receivable from fund shares sold................................................. 14,884
Other assets..................................................................... 1,000
----------
Total Assets................................................................... 6,680,950
----------
LIABILITIES
Dividends payable................................................................ 11,258
Payable for fund shares redeemed................................................. 2,573
Investment advisory fee payable.................................................. 275
Other payables and accrued expenses.............................................. 18,917
----------
Total Liabilities.............................................................. 33,023
----------
Total Net Assets............................................................... $6,647,927
==========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)....................................................... $ 6,436
Paid-in-capital in excess of par................................................. 6,622,946
Accumulated net realized loss on investments..................................... (23,970)
Net unrealized appreciation on investments....................................... 42,515
----------
Total Net Assets............................................................... $6,647,927
==========
Fund shares outstanding.......................................................... 643,563
----------
Net asset value per share........................................................ $ 10.33
==========
</TABLE>
See accompanying notes to financial statements.
A-121
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................................ $161,985
--------
OPERATING EXPENSES
Investment advisory fees (note 2)............................................... 14,993
Custodian fees (note 1G)........................................................ 10,174
Transfer and dividend disbursing agent fees..................................... 6,033
Audit fees...................................................................... 3,838
Reports and notices to shareholders............................................. 1,136
Legal fees...................................................................... 900
Miscellaneous................................................................... 1,238
--------
Total operating expenses..................................................... 38,312
Less: Investment advisory fees waived (note 2)............................... (13,132)
Less: Expenses offset (note 1G).............................................. (196)
--------
Net operating expenses.................................................. 24,984
--------
Net investment income................................................... 137,001
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS - NET
Net realized loss on investments................................................ (16,079)
Net change in unrealized appreciation (depreciation) on investments............. 26,949
--------
Net realized loss and change in unrealized appreciation (depreciation) on
investments................................................................. 10,870
--------
Net increase in net assets resulting from operations.............................. $147,871
========
</TABLE>
See accompanying notes to financial statements.
A-122
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income........................................ $ 137,001 $ 130,053
Net realized loss on investments............................. (16,079) (7,891)
Net change in unrealized appreciation (depreciation) on
investments................................................ 26,949 (26,424)
---------- ----------
Net increase in net assets resulting from operations.... 147,871 95,738
---------- ----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................................ (137,001) (130,053)
Net realized gains........................................... -- --
---------- ----------
Total dividends and distributions to shareholders....... (137,001) (130,053)
---------- ----------
FUND SHARE TRANSACTIONS
Net proceeds from sales...................................... 3,495,129 2,180,216
Reinvestment of dividends and distributions.................. 125,744 130,663
Cost of shares redeemed...................................... (405,814) (297,024)
---------- ----------
Net increase in net assets from fund share
transactions.......................................... 3,215,059 2,013,855
---------- ----------
Total increase in net assets....................... 3,225,929 1,979,540
NET ASSETS
Beginning of period.......................................... 3,421,998 1,442,458
---------- ----------
End of period (including undistributed net investment income
of $0 and $0, respectively)................................ $6,647,927 $ 3,421,998
========== ==========
SHARES ISSUED AND REDEEMED
Issued....................................................... 341,129 209,939
Issued in reinvestment of dividends and distributions........ 12,193 12,589
Redeemed..................................................... (39,494) (28,592)
---------- ----------
Net increase............................................ 313,828 193,936
========== ==========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-123
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the U.S. Government Income Portfolio (the "Portfolio") and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions are determined
in accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal income tax treatment; temporary
differences do not require reclassification. To the extent dividends and/or
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as dividends and/or distributions of
paid-in-capital or tax return of capital.
A-124
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios or
another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .60%. The Adviser has agreed to
waive that portion of the advisory fee and to assume any necessary expenses to
limit total operating expenses of the Portfolio to 1.00% (net of expenses
offset) of average net assets on an annual basis.
(3) PURCHASES AND SALES OF SECURITIES
For the six months ended June 30, 1997 purchases and sales of investment
securities, other than short-term securities, were $6,237,713 and $3,017,417,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $69,498, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $28,671 and net unrealized appreciation for Federal income tax purposes is
$40,827. Federal income tax cost basis of portfolio securities is $6,500,122 at
June 30, 1997.
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG") signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
A-125
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
JANUARY 3, 1995(1)
SIX MONTHS ENDED YEAR ENDED TO
JUNE 30, 1997(7) DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 10.38 $ 10.62 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment income................... 0.28 0.55 0.60
Net realized and unrealized gain (loss)
on investments........................ (0.05) (0.24) 0.68
---------- ---------- ----------
Total from investment operations...... 0.23 0.31 1.28
---------- ---------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income..................... (0.28) (0.55) (0.60)
Distributions to shareholders from net
realized gains........................ -- -- (0.06)
---------- ---------- ----------
Total dividends and distributions to
shareholders....................... (0.28) (0.55) (0.66)
---------- ---------- ----------
Net asset value, end of period.......... $ 10.33 $ 10.38 $ 10.62
========== ========== ==========
Total return (2)........................ 2.2% 3.0% 13.1%
========== ========== ==========
Net assets, end of period............... $ 6,647,927 $ 3,421,998 $1,442,458
---------- ---------- ----------
Ratio of net operating expenses to
average net assets (5,6).............. 1.01%(3,4) 0.96% 0.75%(3)
---------- ---------- ----------
Ratio of net investment income to
average net assets (6)................ 5.48%(3,4) 5.27% 5.75%(3)
---------- ---------- ----------
Portfolio turnover rate................. 60% 31% 65%
---------- ---------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $5,038,930.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.53% and 4.96%, annualized,
respectively, for the six months ended June 30, 1997, and 2.34% and 3.87%,
respectively, for the year ended December 31, 1996 and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
(7) Unaudited.
A-126
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- - ---------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCY NOTES - 7.6%
Federal Home Loan Bank,
$ 265,000 5.40%, 7/24/97..................................................... $ 264,086
1,580,000 5.41%, 8/14/97..................................................... 1,569,553
-----------
Total U.S. Government Agency Notes (cost - $1,833,639)............. $ 1,833,639
-----------
<CAPTION>
SHARES
<C> <S> <C>
COMMON STOCKS - 91.4%
AUSTRALIA - 1.0%
ENERGY - .5%
37,328 Novus Petroleum Ltd. .............................................. $ 128,358
-----------
PAPER PRODUCTS - .5%
17,137 WMC Ltd. .......................................................... 108,143
-----------
Total Australian Common Stocks..................................... 236,501
-----------
BERMUDA - 4.1%
INSURANCE - 4.1%
12,800 ACE Ltd. .......................................................... 945,600
800 EXEL Ltd. ......................................................... 42,200
-----------
Total Bermuda Common Stocks........................................ 987,800
-----------
BRAZIL - 1.9%
BANKING - .5%
5,000 Bompreco Supermecados Norde* GDR................................... 121,500
-----------
PAPER PRODUCTS - .3%
3,100 Aracruz Celulose SA ADR............................................ 63,163
-----------
TELECOMMUNICATIONS - .8%
3,200 Ericsson Telecomunicacoes SA....................................... 190,237
-----------
TEXTILES/APPAREL - .3%
210 Compahnia de Tecidos Norte de Minas-Conteminas..................... 81,928
-----------
Total Brazilian Common Stocks...................................... 456,828
-----------
CANADA - 2.8%
ELECTRONICS - .4%
11,940 CAE, Inc. ......................................................... 94,676
-----------
ENERGY - 1.4%
3,000 PanCanadian Petroleum Ltd. ........................................ 63,000
3,750 Precision Drilling Corp.*.......................................... 181,125
3,600 Suncor, Inc. ...................................................... 95,413
-----------
339,538
-----------
</TABLE>
A-127
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CANADA (CONTINUED)
PRINTING/PUBLISHING - .3%
3,250 Thomson Corp. ..................................................... $ 75,664
-----------
SECURITY/INVESTIGATION - .4%
4,500 Unican Security Systems Ltd. ...................................... 90,590
-----------
TRANSPORTATION - .3%
2,875 Canadian Pacific Ltd. ............................................. 81,298
-----------
Total Canadian Common Stocks....................................... 681,766
-----------
CHILE - .3%
CONGLOMERATES - .3%
3,300 Quinenco SA* ADR................................................... 61,050
-----------
CZECHOSLOVAKIA - .4%
TELECOMMUNICATIONS - .2%
550 SPT Telekom AS*.................................................... 57,679
-----------
MISCELLANEOUS FINANCIAL SERVICES - .2%
2,000 CKD Praha Holding AS*.............................................. 54,409
-----------
Total Czechoslovakian Common Stocks................................ 112,088
-----------
FINLAND - 1.6%
DRUGS & MEDICAL PRODUCTS - .2%
8,200 Oy Tamro AB........................................................ 56,848
-----------
TELECOMMUNICATIONS - 1.4%
4,500 Oy Nokia AB........................................................ 335,372
-----------
Total Finnish Common Stocks........................................ 392,220
-----------
FRANCE - 4.3%
ELECTRONICS - .9%
500 Le Carbone Lorraine................................................ 121,667
1,559 Schneider SA....................................................... 82,981
-----------
204,648
-----------
ENERGY - .9%
2,116 Total SA........................................................... 213,879
-----------
INSURANCE - .7%
2,800 AXA*............................................................... 174,145
-----------
MANUFACTURING - .4%
1,556 Michelin (CGDE).................................................... 93,439
-----------
POWER/UTILITIES - .6%
2,264 Compagnie Generale des Eaux........................................ 145,725
-----------
</TABLE>
A-128
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FRANCE (CONTINUED)
TECHNOLOGY - .8%
2,400 SGS-Thomson Microelectronics N.V.*................................. $ 189,494
-----------
Total French Common Stocks......................................... 1,021,330
-----------
GERMANY - 4.6%
CHEMICALS - .8%
1,300 SGL Carbon AG...................................................... 177,994
-----------
COMPUTER SERVICES - 1.4%
1,650 SAP AG............................................................. 331,116
-----------
CONSUMER PRODUCTS - .6%
1,300 Adidas AG.......................................................... 143,856
-----------
DRUGS & MEDICAL PRODUCTS - .3%
1,150 Gehe AG............................................................ 78,465
-----------
INSURANCE - .6%
175 Koelnische Rueckversicherungs AG................................... 149,504
-----------
RETAIL - .9%
2,000 Metro AG........................................................... 219,139
-----------
Total German Common Stocks......................................... 1,100,074
-----------
HONG KONG - .6%
BANKING - .4%
216,000 Manhattan Credit Card Co., Ltd. ................................... 98,279
-----------
MISCELLANEOUS FINANCIAL SERVICES - .2%
70,000 Noble Group Ltd.*.................................................. 54,600
-----------
Total Hong Kong Common Stocks...................................... 152,879
-----------
HUNGARY - 1.1%
CONGLOMERATES - .3%
6,650 Benpres Holdings Corp.* GDR........................................ 49,044
3,800 Benpres Holdings Corp.* GDR Reg. S................................. 26,600
-----------
75,644
-----------
DRUGS & MEDICAL PRODUCTS - .8%
500 Gedeon Richter Ltd., GDR........................................... 45,750
500 Gedeon Richter Ltd., GDR Reg. S.................................... 45,688
1,050 Gedeon Richter Ltd., GDS........................................... 96,600
-----------
188,038
-----------
Total Hungarian Common Stocks...................................... 263,682
-----------
INDONESIA - .2%
WHOLESALE - .2%
34,000 PT Tigaraksa Satria................................................ 41,591
-----------
</TABLE>
A-129
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ITALY - .6%
TELECOMMUNICATIONS - .6%
32,000 Telecom Italia S.p.A. ............................................. $ 63,357
49,000 Telecom Italia Mobile S.p.A.*...................................... 87,646
-----------
151,003
-----------
JAPAN - 14.3%
AUTOMOTIVE - 1.3%
15,000 Calsonic Corp. .................................................... 95,271
5,000 Honda Motor Co., Ltd. ............................................. 150,497
5,000 Murakami Corp. .................................................... 54,528
-----------
300,296
-----------
BANKING - 1.2%
20 Aeon Credit Service Co., Ltd. ..................................... 1,300
22,000 Daiwa Bank Ltd. ................................................... 104,223
48,000 Yasuda Trust & Banking............................................. 183,423
-----------
288,946
-----------
BUILDING & CONSTRUCTION - .3%
3,000 Sho-Bond Corp. .................................................... 78,259
-----------
CHEMICALS - 2.1%
25,000 Dainippon Ink & Chemicals, Inc. ................................... 107,747
9,000 Sekisui Chemical Co. .............................................. 91,084
6,000 Shin-Etsu Chemical Co. ............................................ 159,135
53,000 Showa Denko K.K. .................................................. 138,719
-----------
496,685
-----------
COMPUTER SERVICES - .6%
4,000 Konami Co., Ltd. .................................................. 149,363
-----------
CONGLOMERATES - .3%
4,000 Inaba Denkisangyo Co. ............................................. 71,541
-----------
CONSUMER PRODUCTS - 1.0%
7,000 Canon, Inc. ....................................................... 190,543
10,000 Minolta Co. Ltd. .................................................. 62,642
-----------
253,185
-----------
DRUGS & MEDICAL PRODUCTS - .8%
7,000 Takeda Chemical Industries......................................... 196,650
-----------
ELECTRICAL ENGINEERING - .0%
100 Kinden Corp. ...................................................... 1,413
-----------
</TABLE>
A-130
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
ELECTRONICS - 3.1%
10,000 Fujitsu Ltd. ...................................................... $ 138,719
1,000 Kyocera Corp.*..................................................... 79,393
8,000 Mitsubishi Electric Corp. ......................................... 44,739
3,000 Omron Corp. ....................................................... 63,602
1,000 Rohm Co. .......................................................... 102,949
8,000 Sodick Co. ........................................................ 64,980
3,000 Sony Corp. ........................................................ 261,473
-----------
755,855
-----------
INSURANCE - .2%
9,000 Fuji Fire & Marine Insurance....................................... 39,182
-----------
METALS & MINING - .3%
5,000 Toho Titanium*..................................................... 76,339
-----------
MISCELLANEOUS FINANCIAL SERVICES - 1.4%
50 Credit Saison Co., Ltd. ........................................... 1,221
2,000 Orix Corp. ........................................................ 148,142
600 Shohkoh Fund....................................................... 181,644
-----------
331,007
-----------
POWER/UTILITIES - .3%
5,000 Kyushu Electric Power.............................................. 85,936
-----------
RETAIL - 1.0%
1,200 Circle K Co. Ltd. ................................................. 68,889
6,000 Mycal Corp. ....................................................... 86,372
1,000 Ryohin Keikaku Co. Ltd. ........................................... 78,869
-----------
234,130
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .4%
6,000 Mikuni Coca-Cola Bottling.......................................... 88,990
-----------
Total Japanese Common Stocks....................................... 3,447,777
-----------
LICHTENSTEIN - .3%
BANKING - .3%
130 Liechtenstein Global Trust AG...................................... 79,692
-----------
MEXICO - 1.2%
BUILDING/CONSTRUCTION - .6%
26,000 Corporacion GEO, S.A. de CV*....................................... 149,833
-----------
CONGLOMERATES - .6%
20,000 Alfa S.A. de CV*................................................... 136,395
-----------
Total Mexican Common Stocks........................................ 286,228
-----------
</TABLE>
A-131
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS - 1.6%
IMPORTING/EXPORTING - .3%
1,516 Hagemeyer NV....................................................... $ 78,314
-----------
MISCELLANEOUS FINANCIAL SERVICES - .8%
3,886 ING Groep NV....................................................... 179,165
-----------
PRINTING/PUBLISHING - .5%
5,800 Ver Ned Uitgevers.................................................. 128,239
-----------
Total Netherlands Common Stocks.................................... 385,718
-----------
NEW ZEALAND - .6%
BUILDING & CONSTRUCTION - .4%
28,344 Fletcher Challenge Ltd. ........................................... 84,132
-----------
FOOD SERVICES - .2%
160,392 AFFCO Holdings Ltd. ............................................... 55,563
-----------
Total New Zealand Common Stocks.................................... 139,695
-----------
NORWAY - .7%
ENERGY - .7%
8,400 Saga Petroleum ASA................................................. 159,308
-----------
POLAND - .1%
BANKING - .1%
2,500 Bank Handlowy W. Warszawie*........................................ 28,830
-----------
SINGAPORE - .4%
PRINTING/PUBLISHING - .4%
5,000 Singapore Press Holdings Ltd. ..................................... 100,720
-----------
SOUTH KOREA - .8%
ENERGY - .2%
1,060 Seoul City Gas Co. Ltd. ........................................... 48,225
-----------
TELECOMMUNICATIONS - .3%
6,000 SK Telecom Co. Ltd.* ADR........................................... 60,375
-----------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
490 Lotte Confectionery Co. ........................................... 76,149
-----------
Total South Korean Common Stocks................................... 184,749
-----------
SPAIN - 1.0%
ENERGY - .5%
2,900 Repsol SA.......................................................... 122,613
-----------
MANUFACTURING - .5%
2,600 Vidrala SA......................................................... 113,281
-----------
Total Spanish Common Stocks........................................ 235,894
-----------
</TABLE>
A-132
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWEDEN - 3.9%
BANKING - .4%
2,700 Nordbanken AB*..................................................... $ 91,099
-----------
DRUGS & MEDICAL PRODUCTS - .6%
8,000 ASTRA AB........................................................... 148,924
-----------
ELECTRONICS - .5%
1,600 Electrolux AB...................................................... 115,416
-----------
MACHINERY/ENGINEERING - 1.8%
13,300 ABB AB............................................................. 186,549
6,900 Atlas Copco AB..................................................... 180,182
4,500 Kalmar Industries AB............................................... 77,080
-----------
443,811
-----------
PAPER PRODUCTS - .6%
5,100 AssiDoman AB....................................................... 145,046
-----------
Total Swedish Common Stocks........................................ 944,296
-----------
SWITZERLAND - 3.7%
BANKING - .7%
1,350 CS Holding AG...................................................... 173,373
-----------
BUILDING & CONSTRUCTION - .7%
170 Holderbank Financiere Glaris AG.................................... 160,568
-----------
DRUGS & MEDICAL PRODUCTS - 2.0%
145 Ares-Serono Group.................................................. 210,051
170 Novartis AG*....................................................... 271,767
-----------
481,818
-----------
MANUFACTURING - .3%
25 Sig Schweizerische Industrie - Gesellschaft Holding AG............. 75,771
-----------
Total Swiss Common Stocks.......................................... 891,530
-----------
THAILAND - .3%
WHOLESALE - .3%
27,000 Siam Makro Public Co., Ltd. ....................................... 74,001
-----------
UNITED KINGDOM - 5.6%
COMPUTER SERVICES - .5%
26,000 Amstrad PLC........................................................ 122,966
-----------
DRUGS & MEDICAL PRODUCTS - 1.0%
12,450 SmithKline Beecham PLC............................................. 229,203
-----------
ELECTRONICS - .6%
8,900 Siebe PLC.......................................................... 150,880
-----------
</TABLE>
A-133
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
-----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
MANUFACTURING - 1.1%
48,000 Bridon PLC......................................................... $ 107,112
40,263 LucasVarity PLC*................................................... 139,464
-----------
245,576
-----------
METALS & MINING - .6%
20,000 Antofagasta Holdings PLC........................................... 153,208
-----------
MISCELLANEOUS FINANCIAL SERVICES - .8%
18,317 Lloyds TSB Group PLC............................................... 188,210
-----------
RETAIL - 1.0%
13,116 Dixon Group PLC.................................................... 103,313
24,600 Safeway, Inc. ..................................................... 142,358
-----------
245,671
-----------
Total United Kingdom Common Stocks................................. 1,336,714
-----------
UNITED STATES - 33.4%
AEROSPACE/DEFENSE - 4.4%
3,000 Lockheed Martin Corp. ............................................. 310,687
11,000 McDonnell Douglas Corp. ........................................... 753,500
-----------
1,064,187
-----------
BANKING - 5.7%
4,000 Citicorp........................................................... 482,250
3,300 Wells Fargo & Co. ................................................. 889,350
-----------
1,371,600
-----------
CHEMICALS - 4.6%
11,000 du Pont (E.I.) de Nemours & Co. ................................... 691,625
4,000 Hercules, Inc. .................................................... 191,500
5,000 Monsanto Co. ...................................................... 215,313
-----------
1,098,438
-----------
CONGLOMERATES - 1.9%
10,000 Tenneco, Inc. ..................................................... 451,875
-----------
CONSUMER PRODUCTS - 1.8%
13,000 Mattel, Inc. ...................................................... 440,375
-----------
DRUGS & MEDICAL PRODUCTS - 1.7%
8,000 Becton, Dickinson & Co. ........................................... 405,000
-----------
FOOD SERVICES - 2.8%
14,000 McDonald's Corp. .................................................. 676,375
-----------
MACHINERY/ENGINEERING - 1.3%
3,000 Caterpillar, Inc. ................................................. 322,125
-----------
</TABLE>
A-134
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- - ---------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 3.3%
23,000 Federal Home Loan Mortgage Corp. .................................. $ 790,625
-----------
PAPER PRODUCTS - .7%
3,000 Champion International, Inc. ...................................... 165,750
-----------
RAILROADS - 1.2%
4,000 Union Pacific Corp. ............................................... 282,000
-----------
TECHNOLOGY - 1.1%
1,000 Intel Corp. ....................................................... 141,812
4,000 National Semiconductor Corp.*...................................... 122,500
-----------
264,312
-----------
TELECOMMUNICATIONS - 2.9%
1,300 Loral Space & Communications Ltd.*................................. 19,500
45,000 Tele-Communications, Inc. (Class A)*............................... 669,375
-----------
688,875
-----------
Total United States Common Stocks.................................. 8,021,537
-----------
Total Common Stocks (cost - $17,962,852)........................... $21,975,501
-----------
Total Investments (cost - $19,796,491)............................. 99.0%
$23,809,140
Other Assets in Excess of Liabilities....................... 1.0 239,169
------ ----------
Total Net Assets............................................ 100.0% $24,048,309
====== ===========
</TABLE>
- - ---------------
* Non-income producing security.
See accompanying notes to financial statements.
A-135
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost - $19,796,491)..................................... $23,809,140
Cash........................................................................... 141,921
Foreign currencies (cost - $53,177)............................................ 52,033
Receivable from fund shares sold............................................... 42,582
Dividends receivable........................................................... 17,395
Foreign withholding taxes reclaimable.......................................... 9,131
Other assets................................................................... 889
-----------
Total Assets................................................................. 24,073,091
-----------
LIABILITIES
Payable for fund shares redeemed............................................... 3,151
Investment advisory fees payable............................................... 1,584
Foreign withholding taxes payable.............................................. 1,229
Other payables and accrued expenses............................................ 18,818
-----------
Total Liabilities............................................................ 24,782
-----------
Total Net Assets............................................................. $24,048,309
===========
COMPOSITION OF NET ASSETS
Par value ($.01 per share)..................................................... $ 15,943
Paid-in-capital in excess of par............................................... 19,851,655
Accumulated undistributed net investment income................................ 100,186
Accumulated undistributed net realized gain on investments..................... 88,939
Accumulated net realized loss on foreign currency transactions................. (19,919)
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies................................ 4,011,505
-----------
Total Net Assets............................................................. $24,048,309
===========
Fund shares outstanding........................................................ 1,594,305
-----------
Net asset value per share...................................................... $ 15.08
-----------
</TABLE>
See accompanying notes to financial statements.
A-136
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $14,770)...................... $ 161,489
Interest..................................................................... 63,629
----------
Total investment income................................................... 225,118
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)........................................... 79,334
Custodian fees (note 1H)..................................................... 29,897
Audit fees................................................................... 5,150
Transfer and dividend disbursing agent fees.................................. 4,614
Reports and notices to shareholders.......................................... 1,737
Legal fees................................................................... 1,080
Miscellaneous................................................................ 1,383
----------
Total operating expenses.................................................. 123,195
Less: Investment advisory fees waived (note 2A)........................... (2,537)
Less: Expenses offset (note 1H)........................................... (685)
----------
Net operating expenses............................................... 119,973
----------
Net investment income................................................ 105,145
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS - NET
Net realized gain on investments............................................. 92,782
Net realized loss on foreign currency transactions........................... (19,919)
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies................................................................ 2,621,255
----------
Net realized gain and change in unrealized appreciation (depreciation) on
investments and translation of other assets and liabilities denominated
in foreign currencies.................................................... 2,694,118
----------
Net increase in net assets resulting from operations........................... $2,799,263
==========
</TABLE>
See accompanying notes to financial statements.
A-137
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996
---------------- --------------------
<S> <C> <C>
OPERATIONS
Net investment income....................................... $ 105,145 $ 73,364
Net realized gain on investments............................ 92,782 145,915
Net realized loss on foreign currency transactions.......... (19,919) (67,648)
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies............. 2,621,255 1,247,855
----------- -----------
Net increase in net assets resulting from operations... 2,799,263 1,399,486
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income....................................... (7,066) (60,776)
Net realized gains on investments........................... (3,843) (89,998)
----------- -----------
Total dividends and distributions to shareholders...... (10,909) (150,774)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales..................................... 4,606,509 16,110,547
Reinvestment of dividends and distributions................. 10,909 150,774
Cost of shares redeemed..................................... (329,951) (3,428,866)
----------- -----------
Net increase in net assets from fund share
transactions......................................... 4,287,467 12,832,455
----------- -----------
Total increase in net assets...................... 7,075,821 14,081,167
NET ASSETS
Beginning of period......................................... 16,972,488 2,891,321
----------- -----------
End of period (including undistributed net investment income
of $100,186 and $2,107, respectively)..................... $ 24,048,309 $ 16,972,488
=========== ===========
SHARES ISSUED AND REDEEMED
Issued...................................................... 334,220 1,304,431
Issued in reinvestment of dividends and distributions....... 804 11,415
Redeemed.................................................... (23,321) (282,190)
----------- -----------
Net increase........................................... 311,703 1,033,656
=========== ===========
</TABLE>
- - ---------------
(1) Unaudited.
See accompanying notes to financial statements.
A-138
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio (the
"Portfolio"), the Managed Portfolio, the U.S. Government Income Portfolio and
the Money Market Portfolio. OpCap Advisors (the "Adviser"), a majority-owned
(99%) subsidiary of Oppenheimer Capital, serves as the Trust's investment
adviser. The Trust is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans. The following is a summary of significant
accounting policies consistently followed by the Portfolio in the preparation of
its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
exchange or traded in the over-the-counter National Market System are valued
each business day at the last reported sale price; if there are no such reported
sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by the Board of Trustees. The ability of issuers of debt instruments
to meet their obligations may be affected by economic developments in a specific
industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are included
in the portfolio's Statement of Operations. Since the net assets of the
Portfolio are presented at the foreign exchange rates and market prices at the
close of the period, the Portfolio does not
A-139
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(D) FOREIGN CURRENCY TRANSLATION (CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
isolate that portion of the results of operations arising as a result of changes
in the exchange rates from fluctuations arising from changes in the market price
of securities.
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions are determined
in accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal income tax treatment; temporary
differences do not require reclassification. To the extent dividends and/or
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as dividends and/or distributions of
paid-in-capital or tax return of capital.
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(G) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(H) CUSTODY OFFSETS
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser has voluntarily
agreed to waive that portion of the advisory fee necessary to limit total
operating expenses of the Portfolio to 1.25% (net of expenses offset) of average
net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the six months ended
June 30, 1997 amounted to $21,497, of which Oppenheimer & Co., Inc., an
affiliate of the Adviser, received $880.
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<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1997
(3) PURCHASES AND SALES OF INVESTMENTS
For the six months ended June 30, 1997, purchases and sales of investment
securities, other than short-term securities, were $6,796,997 and $2,508,482,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $4,307,655, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $295,006 and net unrealized appreciation for Federal income tax purposes is
$4,012,649. Federal income tax cost basis of portfolio securities is $19,796,491
at June 30, 1997.
(5) AFFILIATED TRANSACTION
On July 22, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with approximately $119 billion in assets under management
through various subsidiaries and its affiliate Thomson Advisory Group Inc.
("TAG"), signed an Amended and Restated Merger Agreement with Oppenheimer Group,
Inc. ("OGI"), its subsidiary Oppenheimer Financial Corp. ("Opfin") and certain
related parties pursuant to which PIMCO Advisors and TAG and its successor, will
acquire the one-third managing general partner interest in Oppenheimer Capital,
its 1.0% general partner interest in OpCap Advisors, and its 1.0% general
partner interest in Oppenheimer Capital L.P. (the "Transaction"). If the
Transaction is consummated, it will involve a change in control of Oppenheimer
Capital and its subsidiary OpCap Advisors which will constitute an assignment
and termination of the Investment Advisory Agreement with the Trust. At a
meeting held on February 28, 1997, the Trustees, including all independent
Trustees, approved and determined to submit to shareholders for approval, a new
Investment Advisory Agreement with OpCap Advisors, substantially upon the same
terms and conditions as the existing Investment Advisory Agreement. Proxy
material will be sent to shareholders concerning the new Investment Advisory
Agreement.
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<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED MARCH 1, 1995(1) TO
JUNE 30, 1997(7) DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of
period............................. $ 13.23 $ 11.61 $ 10.00
----------- ----------- ----------
Income from investment operations:
Net investment income................ 0.07 0.04 0.05
Net realized and unrealized gain on
investments........................ 1.79 1.70 1.83
----------- ----------- ----------
Total from investment operations... 1.86 1.74 1.88
----------- ----------- ----------
Dividends and distributions to
shareholders:
Dividends to shareholders from net
investment income.................. (0.01) (0.05) (0.03)
Distributions to shareholders from
net realized gains................. (0.00) (0.07) (0.24)
----------- ----------- ----------
Total dividends and distributions
to shareholders................. (0.01) (0.12) (0.27)
----------- ----------- ----------
Net asset value, end of period....... $ 15.08 $ 13.23 $ 11.61
=========== =========== ==========
Total return (2)..................... 14.1% 15.0% 18.9%
=========== =========== ==========
Net assets, end of period............ $ 24,048,309 $16,972,488 $2,891,321
----------- ----------- ----------
Ratio of net operating expenses to
average net assets (5,6)........... 1.22%(3,4) 1.42% 1.25%(3)
----------- ----------- ----------
Ratio of net investment income to
average net assets (6)............. 1.06%(3,4) 0.81% 1.02%(3)
----------- ----------- ----------
Portfolio turnover rate.............. 14% 40% 67%
----------- ----------- ----------
Average commission rate.............. $ 0.0228 $ 0.0254 --
----------- ----------- ----------
</TABLE>
- - ---------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the six months ended June 30, 1997 were $19,997,903.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.24% and 1.03%, annualized,
respectively, for the six months ended June 30, 1997, 1.83% and 0.22%,
respectively, for the year ended December 31, 1996 and 3.94% and (1.67%),
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
(7) Unaudited.
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