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OCC ACCUMULATION TRUST
o EQUITY PORTFOLIO
o SMALL CAP PORTFOLIO
o MANAGED PORTFOLIO
o U.S. GOVERNMENT INCOME PORTFOLIO
ANNUAL REPORT
1998
MANAGED BY
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OCC ACCUMULATION TRUST
MANAGED BY
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We are pleased to report on the investment activities and results of the
portfolios in the OCC Accumulation Trust in 1998, a year of generally favorable
returns in both the stock and bond markets.
As measured by the Standard & Poor's 500 Index, the U.S. stock market
continued its remarkable advance, benefiting from a sustained U.S. economic
environment of moderate growth, declining interest rates and extremely low
inflation. The total return of that index was 28.6% in 1998, the fourth
consecutive year in which the S&P 500 has increased more than 20%.
Although economic conditions in Asia, Russia and Latin America were less
than robust, non-U.S. stock markets delivered positive returns on balance, but
in many cases with a high degree of price volatility. The total return of Morgan
Stanley Capital International's World Index was 24.3% in U.S. dollars.
Fixed income securities also provided generally strong results in 1998,
benefiting from declining interest rates and low inflation. Long-term U.S.
Treasury bonds led the way, with their prices being bid up by investors wanting
to own the safest fixed income securities at a time of global economic
uncertainty.
Beneath the surface, however, there were many crosscurrents in the U.S.
stock market. The year's sharp increase for the S&P 500 Index was driven
primarily by a limited group of super-large company stocks. Many other stocks
were left behind. For instance, the Wilshire Midcap 750 Index was up only 3.7%
in 1998, while the Russell 2000 Index, a benchmark of small company stocks in
the U.S., declined 2.6%. The strong relative performance of large versus small
stocks reflected the preference of many investors for owning highly liquid large
issues--especially those with predictable earnings--at a time when the
international economic outlook is uncertain and widespread concern exists that
the rate of economic growth in the U.S. may be slowing.
There was also a wide disparity between the performance of growth stocks
(those projected to have high future earnings growth rates) and value stocks
(those considered to be undervalued in relation to their inherent worth). The
S&P 500/BARRA Growth Index rose 42.2% in 1998 while the S&P 500/BARRA Value
Index increased 14.7%. Performance gaps of this type, favoring either growth or
value, are common. Nonetheless, the 1998 differential was one of the largest in
history. Many quality stocks that are inexpensive languished or even fell in
price, while some growth stocks with high valuations became even more expensive.
Even though we employ a value philosophy of investing, we are not against
growth. Indeed, we always want to buy good businesses that are growing. It is
just that we are against paying too much for that growth. Overpaying adds to
risk and makes it harder to achieve long-term profit.
The ebbs and flows of growth and value are part of the fabric of markets.
We do not know when the stock market will swing back to value, but we believe it
will swing back. Meanwhile, we will stick with our disciplined value philosophy
because it has proven itself over time and because it offers a way to
participate in the stock market without taking excessive risk. In other words,
we will continue to invest carefully for the long term, rather than chase after
those growth stocks that we believe to be overvalued or buy companies that are
in vogue.
We believe our style works over time precisely because it is based on
investing in quality companies at prices below their inherent worth. While our
style sometimes requires patience, we believe the inherent value of a
company--which is based on earnings, cash flow, strength of balance sheet,
competitive strengths, business outlook and other factors--almost always ends up
being reflected in the share price.
The objective of our strategy is to generate excellent returns over time.
We believe our approach is well suited for the long-term investor seeking to
achieve favorable returns in the stock market without taking large risks.
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OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
The Equity Portfolio is intended for the long-term investor seeking to
preserve capital and make it grow through investments in quality undervalued
securities. It invests in a diverse group of what we believe are undervalued
companies with superior business characteristics, including strong competitive
positions, high cash flow and favorable earnings outlooks.
Nineteen ninety-eight was a difficult year for value investors and the
Portfolio provided a total return of only 11.9%, compared with a return of 28.6%
for the Standard & Poor's 500 Index with dividends included (S&P 500). The S&P
500 is an unmanaged index of 500 of the largest corporations weighted by market
capitalization. The Portfolio's performance compared with an average total
return of 22.1% for the funds in Lipper's Variable Insurance Products
Performance Service Report capital appreciation category. The Portfolio's
performance was 33rd among the 46 funds in this Lipper category.
We underperformed the market and our category for several reasons. For one,
we own the stocks of a diverse group of large and mid-sized companies, and mid
cap stocks did not perform nearly as well as the S&P 500, which is dominated by
larger companies. In addition, the performance of the market in 1998 was driven
primarily by large "growth" stocks. Year-to-year performance differentials
between value and growth styles of investing are common, and we are confident
the pendulum will swing back to value investing in time.
In addition, with our risk-averse investment philosophy, we sometimes trail
the market averages in periods of sharply rising prices. We focus on long-term
investments in quality companies rather than attempting to predict near-term
market trends.
While the Portfolio's 1998 results did not live up to our expectations, we
remain dedicated to our disciplined investment philosophy which has produced
excellent returns over time. For the three years ended December 31, 1998, the
Portfolio provided an average annual total return of 20.4%, compared with an
average total return of 20.1% for the funds in the Lipper capital appreciation
category and 28.2% for the S&P 500 Index. This three-year performance ranked
15th among the 33 funds in the Lipper category. For the five years ended
December 31, 1998, the Portfolio's average annual total return of 20.3%*
compared with an average annual total return of 17.8% for the funds in the
Lipper capital appreciation category and an average annual return of 24.0% for
the S&P 500. The Portfolio's five-year performance was seventh among the 24
funds in the Lipper category. In the 10 years ended December 31, 1998, the
Portfolio generated an average annual total return of 17.5%*, compared with
17.5% for the funds in the Lipper capital appreciation category and 19.2% for
the S&P 500. This 10-year performance was seventh among the 13 funds in the
category. Since its inception on August 1, 1988, the Portfolio has provided an
average annual total return of 17.0%* versus 18.8% for the S&P 500. Returns for
the Portfolio take into account expenses incurred by the Portfolio, but not
other charges imposed by the Variable Accounts.
In the second half of 1998, we established new positions in the common
stocks of AlliedSignal Inc., Avery Dennison Corporation, BankBoston Corporation,
Computer Associates International, Inc., Motorola, Inc. and WPP Group plc (ADR).
Avery Dennison demonstrates some of the characteristics we look for in an
investment. It holds the leading market share in pressure-sensitive materials,
and enjoys economies of scale in production, customer service infrastructure,
and research and development spending. It has driven costs lower and
simultaneously developed important new products like self-adhesive postage
stamps and Duracell power-check battery labels. Avery has an after-tax return on
invested capital of 18%, an underleveraged balance sheet and strong free cash
flow. The stock sells at a significantly lower valuation than other industrial
or chemical companies of similar quality.
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* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"),
was effectively divided into two investment funds--the Old Trust and the
present OCC Accumulation Trust (the "Present Trust")--at which time the
Present Trust commenced operations. The total net assets of the Equity
Portfolio immediately after the transaction were $86,789,755 in the Old Trust
and $3,764,598 in the Present Trust. For the period prior to September 16,
1994, the performance figures for the Equity Portfolio of the Present Trust
reflect the performance of the Equity Portfolio of the Old Trust.
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WPP Group, another of the Portfolio's new investments, is one of the
world's leading advertising and specialty communications services firms. Half of
WPP's revenues come from traditional advertising, a profitable but mature
market. The company's operating units in this sector include J. Walter Thompson
Company and Ogilvy & Mather Worldwide, advertising agencies with solid long-term
reputations. The other half comes from specialty communications and
nontraditional and interactive advertising, which are growing rapidly in
revenues and profitability. In the early 1990s, WPP encountered severe financial
difficulties because of undisciplined acquisitions. Under the leadership of its
chief executive officer, Martin Sorrell, the company turned its financial
performance around by researching, benchmarking and copying best industry
practices. The impact of this change is reflected in WPP's record of improving
profitability and new business wins, as it approaches the performance of its
best managed and most profitable competitors. Yet, investors have been slow to
recognize these changes, and the stock continues to be valued at a discount to
its competitors, providing an opportunity to acquire a quality company at an
attractive price.
Investments that we sold in the second half of the year included Boeing
Co., Hercules, Inc., International Flavors & Fragrances, Inc., Lockheed Martin
Corp. and Union Pacific Corp.
As of December 31, 1998, the Portfolio's net assets were allocated 84.7% to
common stocks and 15.3% to cash and cash equivalents. The Portfolio's cash
position is a resource to buy stocks we like as they become available at
attractive prices.
The Portfolio owns an eclectic group of companies chosen for their strong
managements, high returns on capital and dominant market positions, as well as
their reasonable valuations. Approximately 30% of net assets are invested in
companies in the financial services industry, including insurance and banking,
where many quality companies continue to sell at reasonable prices. Our
ownership of these stocks reflects the strong balance sheets and favorable
earnings prospects of the companies, as well as the low relative valuations of
the stocks.
The Portfolio's five largest equity positions at December 31, 1998 were
EXEL Ltd. (Class A shares), a strongly capitalized specialty insurance company
headquartered in Bermuda, representing 4.7% of the Portfolio's net assets; ACE
Ltd., a Bermuda-based provider of excess directors and officers liability
insurance, 4.0% of net assets; Rockwell International Corp., which manufactures
industrial automation, avionics and communications, and electronic products,
3.5% of net assets; Dover Corp., a diversified manufacturer of industrial
products, 3.5% of net assets; and Textron, Inc., a diversified global company
participating in the aircraft, automotive, industrial and finance industries,
3.4% of net assets.
Major industry positions at the end of December were in the insurance
sector, 19.5% of the Portfolio's net assets; conglomerates, 6.2% of net assets;
banking, 5.5% of net assets; machinery/engineering, 5.0% of net assets; and
electronics, 4.8% of net assets.
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
OCC ACCUMULATION TRUST EQUITY PORTFOLIO FROM INCEPTION (8/1/88)*
THROUGH 12/31/98 AND TOTAL RETURN ON S&P 500 INDEX+
[LINE GRAPH]
[PERFORMANCE GRAPH]
Date S&P 500 Index+ Equity Portfolio
-------- -------------- ----------------
8/01/88 $10,000 $10,000
12/31/88 $10,383 $10,190
12/31/89 $13,673 $12,500
12/31/90 $13,249 $12,223
12/31/91 $17,285 $16,038
12/31/92 $18,602 $18,909
12/31/93 $20,475 $20,393
12/31/94 $20,746 $21,171
12/31/95 $28,542 $29,396
12/31/96 $35,095 $36,264
12/31/97 $46,804 $45,920
12/31/98 $60,179 $51,366
The performance graph does not reflect charges imposed by the Variable Accounts.
Past performance is not predictive of future performance
Assumes reinvestment of all dividends and distributions
+ With dividends
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR* SINCE AUGUST 1, 1988*
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11.9% 20.3% 17.0%
* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"), was
effectively divided into two investment funds--the Old Trust and the present OCC
Accumulation Trust (the "Present Trust")--at which time the Present Trust
commenced operations. The total net assets of the Equity Portfolio immediately
after the transaction were $86,789,755 in the Old Trust and $3,764,598 in the
Present Trust. For the period prior to September 16, 1994, the performance
figures for the Equity Portfolio of the Present Trust reflect the performance of
the Equity Portfolio of the Old Trust.
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OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
Stocks of smaller companies, many of which had fallen sharply in price
during the third quarter of 1998, sprang back to life in early October, with
technology issues leading the advance. However, the rally proved short lived. By
mid-November, small caps were again lagging large caps, reflecting the
preference of many investors for owning highly liquid large cap
stocks--especially large caps with predictable earnings--in a volatile market
environment.
In a very difficult year for small cap and value investors, the Small Cap
Portfolio was down 9.0% in 1998, compared with a 2.5% decrease for the Russell
2000 Index with dividends included (Russell 2000) and an average increase of
1.4% for the small cap funds monitored by Lipper's Variable Insurance Products
(VIP) Performance Analysis Service. The Portfolio's performance was 80th among
the 92 funds in the Lipper small cap category.
Our performance trailed the Russell 2000 for a number of reasons. One was
the poor performance of our holdings of oil and gas stocks, including Cabot Oil
& Gas and St. Mary Land & Exploration. In addition, "value" styles of investing
have generally underperformed "growth" styles in recent months. Performance gaps
of this type, favoring either growth or value, are common. We do not know when
the stock market will swing back to value, but we feel confident it will swing
back.
For the three years ended December 31, 1998, the Portfolio provided an
average annual total return of 9.7%, compared with an average total return of
14.0% for the funds in the Lipper small cap category and 11.6% for the Russell
2000 Index. This three-year performance was 35th among the 45 funds in the
Lipper category. For the five years ended December 31, 1998, the Portfolio
provided an average annual total return of 8.5%*, compared with an average of
12.9% for the funds in the Lipper small cap category and 11.9% for the Russell
2000. The Portfolio's five-year performance was 18th among the 20 funds in this
Lipper universe. For the 10 years ended December 31, 1998, the Portfolio's
average annual total return was 13.2%*, compared with an average of 15.9% for
the funds in the Lipper small cap universe and 12.9% for the Russell 2000. This
10-year performance ranked sixth among the seven funds in the Lipper category.
From its inception on August 1, 1988 through December 31, 1998, the Portfolio
generated an average annual total return of 12.8%*, compared with 12.3% for the
Russell 2000. Returns for the Portfolio take into account expenses incurred by
the Portfolio, but not separate account charges imposed by the insurance
company.
The small cap sector is a huge marketplace consisting of thousands of
companies that have, on average, delivered high long-term rates of investment,
but often with short-term price volatility. Our objective is to control this
volatility and generate superior returns by investing in well-established
smaller companies. In particular, we buy businesses with high returns on
capital, high cash flow and barriers to entry, available at reasonable
valuations.
We find many good values in the small cap sector at this time. In the
second half of 1998, we established a new position in Dentsply International,
Inc., a leading manufacturer of dental consumables and equipment. The company is
using its substantial free cash flow to make one or two acquisitions per year,
achieving cost efficiencies by folding the acquired companies into its existing
infrastructure and distribution network. Dentsply's earnings, which are
relatively predictable, are increasing at a rate of about 15% annually.
Moreover, unlike other health care sectors, Dentsply's business is only
minimally influenced by managed care.
Another of our new positions was Precision Castparts Corp., which makes
castings for customers in the aerospace industry and other markets. We bought
the stock after the price fell in response to production problems at Boeing Co.,
Precision's largest customer. Apart from its work for Boeing, the company's
business, including
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* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"),
was effectively divided into two investment funds--the Old Trust and the
present OCC Accumulation Trust (the "Present Trust")--at which time the
Present Trust commenced operations. The total net assets of the Small Cap
Portfolio immediately after the transaction were $139,812,573 in the Old Trust
and $8,129,274 in the Present Trust. For the period prior to September 16,
1994, the performance figures for the Small Cap Portfolio of the Present Trust
reflect the performance of the Small Cap Portfolio of the Old Trust.
<PAGE>
its sales to the gas turbine market, continues to grow. Moreover, the company
earns high returns on equity and generates substantial and growing free cash
flow. We believe the stock is undervalued at a share price that was recently
nine times anticipated earnings.
Other new positions in the second half included Air Express International
Corp., Oak Industries, Inc., Technitrol, Inc. and U.S. Industries, Inc.
We eliminated several positions, including The BISYS Group, Inc., Chicago
Title Corp., Kaydon Corp., Newfield Exploration Co., Roper Industries, Inc. and
Watkins-Johnson Co.
At December 31, 1998, the Portfolio's net assets were allocated 87.3% to
common stocks and 12.7% to cash and cash equivalents. The Portfolio's five
largest equity positions were Wang Laboratories, Inc., a systems integration and
computer maintenance firm, representing 4.1% of the Portfolio's net assets;
Hollinger International, Inc., one of the world's largest newspaper companies,
3.0% of net assets; RenaissanceRe Holdings Ltd., a Bermuda-based insurance
company, 2.9% of net assets; Wallace Computer Services, Inc., which supplies
Fortune 1000 companies with consumable business and office products such as
business forms and labels, as well as with custom and commercial printing, 2.8%
of net assets; and Annuity & Life Re Holdings Ltd., a Bermuda-based insurance
company specializing in annuity and life reinsurance products, 2.7% of net
assets.
Major industry positions were in the insurance sector, representing 18.6%
of the Portfolio's net assets; technology, 10.7% of net assets; chemicals, 8.3%
of net assets; health and hospitals, 7.3% of net assets; and electronics, 6.8%
of net assets.
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO FROM INCEPTION (8/1/88)*
THROUGH 12/31/98 AND TOTAL RETURN ON RUSSELL 2000 INDEX+
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR* SINCE AUGUST 1, 1988*
- ------ ------- ---------------------
(9.0%) 8.5% 12.8%
[LINE GRAPH]
[PERFORMANCE GRAPH]
Date Small Cap Portfolio Russell 2000 Index*
-------- ------------------- -------------------
8/01/88 $10,000 $10,000
12/31/88 $10,150 $ 9,936
12/31/89 $12,060 $11,549
12/31/90 $10,883 $ 9,295
12/31/91 $16,120 $13,575
12/31/92 $19,584 $16,076
12/31/93 $23,405 $19,113
12/31/94 $23,169 $18,778
12/31/95 $26,698 $24,121
12/31/96 $31,696 $28,099
12/31/97 $38,745 $34,383
12/31/98 $35,248 $33,507
The performance graph does not reflect charges imposed by the Variable Accounts.
Past performance is not predictive of future performance
Assumes reinvestment of all dividends and distributions
+ With dividends
* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"), was
effectively divided into two investment funds--the Old Trust and the present OCC
Accumulation Trust (the "Present Trust")--at which time the Present Trust
commenced operations. The total net assets of the Small Cap Portfolio
immediately after the transaction were $139,812,573 in the Old Trust and
$8,129,274 in the Present Trust. For the period prior to September 16, 1994, the
performance figures for the Small Cap Portfolio of the Present Trust reflect the
performance of the Small Cap Portfolio of the Old Trust.
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OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
The Managed Portfolio invests in stocks, bonds and cash equivalents, with a
bias toward stocks, which have outperformed other classes of investments for
nearly every five-year period since the Depression. Our long-term approach and
philosophy of investing in superior businesses available at reasonable prices
has produced one of the best long-term performance records among all funds in
Lipper's Variable Insurance Products Performance Analysis Service Report.
However, the Portfolio's results in 1998 fell far short of our
expectations. The Portfolio's total return was 7.1%, compared with a return of
28.6% for the Standard & Poor's 500 Index with dividends included (S&P 500) and
an average total return of 13.4% for the funds in the Lipper flexible portfolio
category. The S&P 500 is an unmanaged index of 500 of the largest corporations
weighted by market capitalization. The Portfolio's performance was 74th among
the 89 funds in the Lipper flexible portfolio universe.
We trailed both the S&P 500 and the average fund in our category because of
two main factors: our only minimal holdings of technology issues, many of which
had large gains in 1998, and the poor performance of certain of the Portfolio's
investments. The latter included Citigroup, Inc. and Boeing Co., both of which
suffered short-term business problems that affected their share prices. Other
major holdings, including McDonald's Corp., Time Warner Inc. and Federal Home
Loan Mortgage Corp. (Freddie Mac), rose strongly. The market was characterized
by exceptionally strong crosscurrents, including wide performance disparities
among individual stocks. Many quality businesses that are inexpensive languished
or even fell in price, while many growth stocks with what we believed to be
unsustainably high valuations became even more highly valued.
We continue to focus on individual companies and try to understand where
their businesses are going over the next several years. Simply stated, we want
to invest in superior businesses that are underpriced in the stock market. We
define a superior business as one which is extremely well managed, earns high
returns on capital, has a dominant competitive position to protect those returns
and uses the free cash flow resulting from those returns to create shareholder
value, such as through astute acquisitions or share repurchase. The objectives
of our strategy are: a) preserve capital, don't lose it; and b) generate
excellent returns for the Portfolio's shareholders.
The Portfolio continued its very strong record over longer periods. For the
three years ended December 31, 1998, the Portfolio provided an average annual
total return of 17.1%, compared with an average total return of 15.6% for the
funds in the Lipper flexible portfolio category and 28.2% for the S&P 500 Index.
This three-year performance ranked 26th among the 73 funds in the Lipper
category. For the five years ended December 31, 1998, the Portfolio delivered an
average annual total return of 19.2%*, compared with the average annual total
return of 13.8% for the funds in the Lipper flexible portfolio category and
24.0% for the S&P 500. The Portfolio's five-year performance was second among
the 56 funds in this Lipper universe.
For the 10 years ended December 31, 1998, the Portfolio's average annual
total return was 19.3%*, exceeding both the 14.1% average annual total return
for the funds in its Lipper category and the 19.2% average annual return for the
S&P 500. The Portfolio's 10-year results were second among the 35 funds in its
Lipper category. Since its inception on August 1, 1988, the Portfolio has
provided an average annual total return of 19.0%* versus 18.8% for the S&P 500.
Returns for the Portfolio take into account expenses incurred by the Portfolio,
but not other charges imposed by the Variable Accounts.
In the second half of 1998, we established new positions in the stocks of
News Corporation Ltd. (ADR), Philip Morris Companies, Inc., Reed International
plc (ADR) and UAL Corp. Sales included American Express Co., Countrywide Credit
Industries, Intel Corp., Lockheed Martin Corp., National Semiconductor Corp.,
Transamerica Corp. and Triton Energy Ltd.
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* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"),
was effectively divided into two investment funds--the Old Trust and the
present OCC Accumulation Trust (the "Present Trust")--at which time the
Present Trust commenced operations. The total net assets of the Managed
Portfolio immediately after the transaction were $682,601,380 in the Old Trust
and $51,345,102 in the Present Trust. For the period prior to September 16,
1994, the performance figures for the Managed Portfolio of the Present Trust
reflect the performance of the Managed Portfolio of the Old Trust.
<PAGE>
We expect U.S. and international economic growth to slow in 1999, and we
have positioned the Portfolio to perform well in this environment. We own very
few cyclical stocks that would be hurt by economic weakness. The Portfolio's
largest holding is Federal Home Loan Mortgage Corp., which has consistently
delivered favorable investment returns. Known popularly as Freddie Mac, this
company is in the home mortgage insurance business and has one major competitor,
Fannie Mae. Economies of scale and geographic dispersion of risk create high
barriers for would-be competitors. Since regulators are fearful of losses, they
want these two insurers to be strong financially. This is reflected in Freddie
Mac's return on equity, which has exceeded 20% for nearly two decades.
Another of our top positions is Time Warner, Inc., a leading media and
entertainment company. Earnings before interest, taxes and amortization surged
in 1998 as the company's massive cable operations began to reap the benefits of
a large multi-year investment program. Its other businesses, particularly its
cable TV networks, also performed well. In addition, management has shifted its
strategic focus from corporate expansion to maximizing cash earnings and
creating shareholder value.
The Portfolio need not be fully invested in stocks and will own more
defensive income-producing instruments when we believe doing so is prudent. At
December 31, 1998, the Portfolio's net assets were allocated 81.6% to common
stocks, 0.1% to U.S. Treasury securities, and 18.3% to cash and cash
equivalents.
The Portfolio's five largest equity positions at December 31, 1998 were
Federal Home Loan Mortgage Corp. (Freddie Mac), the second largest insurer of
home mortgages in the United States, representing 6.5% of the Portfolio's net
assets; Time Warner, Inc., a leading media and entertainment company, 5.8% of
net assets; McDonald's Corp., a premier fast-food company with growing global
markets, 5.4% of net assets; Citigroup, Inc., a global financial services
company, 4.8% of net assets; and Wells Fargo & Co., a major bank in the western
United States, 4.5% of net assets.
Major industry positions were in the banking sector, 13.9% of the
Portfolio's net assets; food services, 9.1% of net assets; media/broadcasting,
7.8% of net assets; chemicals, 7.6% of net assets; and miscellaneous financial
services, 6.5% of net assets.
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
OCC ACCUMULATION TRUST MANAGED PORTFOLIO FROM INCEPTION (8/1/88)*
THROUGH 12/31/98 AND TOTAL RETURN ON S&P 500 INDEX+
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR* SINCE AUGUST 1, 1988*
------ ------- ---------------------
7.1% 19.2% 19.0%
[LINE GRAPH]
[PERFORMANCE GRAPH]
Date Managed Portfolio S&P 500 Index*
-------- ----------------- --------------
8/01/88 $10,000 $10,000
12/31/88 $10,440 $10,383
12/31/89 $13,839 $13,673
12/31/90 $13,336 $13,249
12/31/91 $19,468 $17,285
12/31/92 $23,098 $18,602
12/31/93 $25,498 $20,475
12/31/94 $26,165 $20,746
12/31/95 $38,082 $28,542
12/31/96 $46,755 $35,095
12/31/97 $57,180 $46,804
12/31/98 $61,252 $60,179
The performance graph does not reflect charges imposed by the Variable Accounts.
Past performance is not predictive of future performance
Assumes reinvestment of all dividends and distributions
+ With dividends
* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"), was
effectively divided into two investment funds--the Old Trust and the present OCC
Accumulation Trust (the "Present Trust")--at which time the Present Trust
commenced operations. The total net assets of the Managed Portfolio immediately
after the transaction were $682,601,380 in the Old Trust and $51,345,102 in the
Present Trust. For the period prior to September 16, 1994, the performance
figures for the Managed Portfolio of the Present Trust reflect the performance
of the Managed Portfolio of the Old Trust.
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
Investments in U.S. Government bonds continued to provide favorable returns
in 1998. The total return of the U.S. Government Income Portfolio was 8.1% for
the year, matching the average total return of 8.1% for the general U.S.
Government funds in Lipper's Variable Insurance Products Performance Analysis
Service Report. This performance was 17th among the 34 funds in the Lipper
category. The Portfolio's return compared with a total return of 8.5% for the
Lehman Brothers Intermediate Government Bond Index (Lehman Index).
The Portfolio is intended for investors seeking high current income from
investments in Government securities. The Portfolio invests principally in debt
obligations issued or guaranteed by the U.S. Government and its agencies or
intermediaries. These issues are considered to carry the least credit risk. The
Portfolio primarily owns intermediate-term securities and places a priority on
maintaining a relatively stable net asset value (NAV) per share.
For the three years ended December 31, 1998, the Portfolio provided an
average annual total return of 6.0%, compared with an average annual total
return of 6.5% for the funds in the Lipper general U.S. Government funds
category and 6.7% for the Lehman Index. The Portfolio's three-year performance
was 26th among the 32 funds in this Lipper universe. From its inception on
January 3, 1995 through December 31, 1998, the Portfolio provided an average
annual total return of 7.8%, compared with 8.6% for the Lehman Index. Returns
take into account expenses incurred by the Portfolio, but not separate account
charges imposed by the insurance company.
Rising bond prices in the second half of 1998 were driven by two powerful
forces: global economic turmoil and the resulting flight to safety, which
benefited high-quality fixed income securities, especially U.S. Treasuries; and
a sustained environment of extremely low inflation. Bond prices were
strengthened as well by three Federal Reserve interest rate cuts beginning in
September.
During the second half of the year, we increased the Portfolio's ownership
of U.S. Treasury securities because of the value we found there. This proved to
be a timely decision, given the strong market performance of Treasuries over the
second half of the year. We also increased its holdings of mortgage-backed
securities to generate additional yield. Price gains of these securities trailed
Treasuries in the half, but we believe mortgage-backed securities will be
favorable investments going forward.
At December 31, 1998, the Portfolio's net assets were allocated 50.1% to
U.S. Treasury securities, 46.7% to U.S. Government agency and mortgage-related
securities, 2.2% to corporate notes and 1.0% to cash and cash equivalents. The
average maturity of the Portfolio was approximately 11.1 years at December 31,
1998.
We remain generally constructive in our view of the market and believe
bonds continue to be an attractive investment. Not only do yields on quality
fixed income securities offer a substantial real return above inflation, but we
believe inflation remains well contained with little risk of a near-term
resurgence.
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
OCC ACCUMULATION TRUST U.S. GOVERNMENT INCOME PORTFOLIO FROM INCEPTION (1/3/95)
THROUGH 12/31/98 AND TOTAL RETURN ON LEHMAN INTERMEDIATE GOV'T. BOND INDEX
[LINE GRAPH]
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------
1 Year 5 Years SINCE JANUARY 3, 1995
------ ------- ---------------------
8.1% N/A 7.8%
[PERFORMANCE GRAPH]
Lehman Intermediate
U.S. Government Government Bond
Date Income Portfolio Index*
-------- ---------------- -------------------
1/03/95 $10,000 $10,000
12/31/95 $11,313 $11,441
12/31/96 $11,655 $11,906
12/31/97 $12,475 $12,825
12/31/98 $13,492 $13,914
The performance graph does not reflect charges imposed by the Variable Accounts.
Past performance is not predictive of future performance
Assumes reinvestment of all dividends and distributions
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTE -- 2.6%
$ 1,300,000 Federal Home Loan Bank,
4.30%, 1/4/99
(cost -- $1,299,534) $ 1,299,534
------------
SHORT-TERM CORPORATE NOTES -- 15.9%
AUTOMOTIVE -- 3.6%
1,755,000 Ford Motor Credit Corp.,
5.31%, 1/11/99 1,752,411
------------
MACHINERY/ENGINEERING -- 4.1%
2,000,000 Deere & Co.,
5.46%, 1/7/99 1,998,180
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.7%
760,000 American Express Credit Corp.,
5.15%, 1/15/99 758,478
Household Finance Corp.
205,000 5.08%, 1/19/99 204,479
1,300,000 5.37%, 1/8/99 1,298,643
------------
2,261,600
------------
OIL/GAS -- 3.5%
1,720,000 Chevron Oil Finance Co.,
5.30%, 1/12/99 1,717,215
------------
Total Short-Term Corporate Notes
(cost -- $7,729,406) 7,729,406
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 84.7%
ADVERTISING -- 3.6%
14,600 Omnicom Group 846,800
15,000 WPP Group plc ADR 926,250
------------
1,773,050
------------
AEROSPACE/DEFENSE -- 4.4%
33,000 AlliedSignal, Inc. 1,462,312
12,000 General Dynamics Corp. 703,500
------------
2,165,812
------------
AUTOMOTIVE -- 2.9%
42,560 LucasVarity Corp. plc ADR 1,425,760
------------
BANKING -- 5.5%
15,000 BankBoston Corp. 584,063
17,390 Citigroup, Inc. 860,805
30,330 Wells Fargo & Co. 1,211,304
------------
2,656,172
------------
CHEMICALS -- 1.3%
12,000 du Pont (E.I.) de Nemours & Co. 636,750
------------
COMPUTER SERVICES -- 1.1%
12,000 Sabre Group Holdings, Inc.* 534,000
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
CONGLOMERATES -- 6.2%
19,000 Minnesota Mining & Manufacturing Co. $ 1,351,375
22,000 Textron, Inc. 1,670,625
------------
3,022,000
------------
CONSUMER PRODUCTS -- 2.5%
27,000 Avery Dennison Corp. 1,216,687
------------
DRUGS & MEDICAL PRODUCTS -- 1.6%
18,084 Becton, Dickinson & Co. 771,961
------------
ELECTRONICS -- 4.8%
10,000 Avnet, Inc. 605,000
4,000 Conexant Systems, Inc. (1)* 67,000
42,000 Rockwell International Corp. (2) 1,687,875
------------
2,359,875
------------
FOOD SERVICES -- 3.3%
12,715 Diageo plc ADR 588,069
13,500 McDonald's Corp. 1,034,437
------------
1,622,506
------------
HEALTH & HOSPITALS -- 1.6%
28,750 Tenet Healthcare Corp.* 754,688
------------
INSURANCE -- 19.5%
56,100 ACE Ltd. 1,931,944
14,744 AFLAC, Inc. 648,736
2,839 American International Group, Inc. 274,318
420 Berkshire Hathaway, Inc. (Class B) 987,000
41,161 Conseco, Inc. 1,257,983
42,000 Everest Reinsurance Holdings, Inc. 1,635,375
30,602 EXEL Ltd. 2,295,150
13,000 RenaissanceRe Holdings Ltd. 476,125
------------
9,506,631
------------
LEISURE -- 1.7%
17,000 Carnival Corp. 816,000
------------
MACHINERY/ENGINEERING -- 5.0%
16,000 Caterpillar, Inc. 736,000
46,000 Dover Corp. 1,684,750
------------
2,420,750
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.5%
19,912 Countrywide Credit Industries, Inc. 999,334
18,620 Federal Home Loan Mortgage Corp. 1,199,826
------------
2,199,160
------------
PRINTING/PUBLISHING -- 2.4%
9,000 Donnelley (R.R.) & Sons Co. 394,313
24,000 Reed International plc ADR 756,000
------------
1,150,313
------------
RETAIL -- 2.0%
15,888 May Department Stores Co. 959,238
------------
TECHNOLOGY -- 0.8%
9,000 Computer Associates International, Inc. 383,625
------------
* Non-income producing security
(1) Shares distributed to holders of Rockwell International Corp.
on January 4, 1999.
(2) Value shown net of spin-off of Conexant Systems, Inc. on
January 4, 1999.
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 2.9%
14,000 Motorola, Inc. $ 854,875
6,000 Sprint Corp. (FON Group) 504,750
3,000 Sprint Corp. (Pcs Group)* 69,375
------------
1,429,000
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 3.4%
31,000 Philip Morris Cos., Inc. 1,658,500
------------
TRANSPORTATION -- 3.7%
23,600 AMR Corp.* 1,401,250
21,000 Canadian Pacific Ltd. 396,375
------------
1,797,625
------------
Total Common Stocks
(cost -- $32,064,612) 41,260,103
------------
Total Investments
(cost -- $41,093,552) 103.2% $ 50,289,043
Liabilities in Excess of Other Assets (3.2) (1,578,332)
----- ------------
Total Net Assets 100.0% $ 48,710,711
----- ------------
----- ------------
SMALL CAP PORTFOLIO
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTE -- 0.6%
965,000 Federal Home Loan Bank,
4.30%, 1/4/99
(cost -- $964,654) 964,654
------------
SHORT-TERM CORPORATE NOTES -- 12.0%
AUTOMOTIVE -- 4.1%
Ford Motor Credit Corp.,
2,335,000 5.28%, 1/8/99 2,332,603
4,025,000 5.41%, 1/5/99 4,022,580
------------
6,355,183
------------
MACHINERY/ENGINEERING -- 3.8%
693,000 Deere & Co.,
5.32%, 1/11/99 691,976
5,180,000 Deere (John) Capital Corp.,
5.24%, 1/11/99 5,172,460
------------
5,864,436
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.0%
5,235,000 American Express Credit Corp.,
5.05%, 1/12/99 5,226,922
1,000,000 Norwest Financial Inc.,
5.50%, 1/22/99 996,792
------------
6,223,714
------------
TECHNOLOGY -- 0.1%
110,000 IBM Credit Corp.,
5.17%, 1/19/99 109,716
------------
Total Short-Term Corporate Notes
(cost -- $18,553,049) 18,553,049
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 87.3%
AGRICULTURE -- 1.0%
50,600 Agribrands International, Inc.* $ 1,518,000
------------
AUTOMOTIVE -- 2.4%
65,500 Borg-Warner Automotive, Inc. 3,655,719
------------
CHEMICALS -- 8.3%
153,200 Hanna (M.A.) Co. 1,886,275
55,900 McWhorter Technologies, Inc.* 1,278,712
161,200 Schulman (A.), Inc. 3,657,225
230,000 TETRA Technologies, Inc.* 2,525,469
225,700 Triarc Companies, Inc.* 3,611,200
------------
12,958,881
------------
COMPUTER SERVICES -- 4.2%
176,767 BancTec, Inc.* 2,220,635
164,300 Wallace Computer Services, Inc. 4,333,413
------------
6,554,048
------------
CONGLOMERATES -- 1.9%
162,000 GP Strategies Corp.* 2,430,000
29,300 U.S. Industries, Inc. 545,712
------------
2,975,712
------------
CONTAINERS -- 0.2%
15,000 AEP Industries, Inc.* 326,250
------------
DRUGS & MEDICAL PRODUCTS -- 1.2%
30,200 Dentsply International, Inc. 777,650
66,000 Vital Signs, Inc. 1,155,000
------------
1,932,650
------------
ELECTRONICS -- 6.8%
87,900 CTS Corp. 3,823,650
165,400 Exar Corp.* 2,667,075
219,500 General Semiconductor, Inc.* 1,797,156
14,700 Oak Industries, Inc.* 514,500
54,800 Technitrol, Inc. 1,746,750
------------
10,549,131
------------
ENERGY -- 5.0%
106,100 Basin Exploration, Inc.* 1,332,881
138,000 Cabot Oil & Gas Corp. 2,070,000
250,700 KCS Energy, Inc. 767,769
99,800 Nuevo Energy Co.* 1,147,700
135,400 St. Mary Land & Exploration Co. 2,504,900
------------
7,823,250
------------
HEALTH & HOSPITALS -- 7.3%
240,200 American Medical Security
Group, Inc. 3,437,863
65,600 Corvel Corp.* 2,312,400
230,000 Magellan Health Services, Inc.* 1,926,250
47,400 Trigon Healthcare, Inc.* 1,768,612
222,500 United Wisconsin Services, Inc. 1,932,969
------------
11,378,094
------------
* Non-income producing security
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INSURANCE -- 18.6%
157,500 Annuity & Life Re Holdings Ltd. $ 4,252,500
128,600 Chartwell Re Corp. 3,054,250
168,000 CNA Surety Corp. 2,646,000
70,100 Delphi Financial Group, Inc. (Class A) 3,675,869
122,600 Enhance Financial Services Group, Inc. 3,678,000
70,700 E.W. Blanch Holdings, Inc. 3,353,831
27,900 Horace Mann Educators Corp. 795,150
122,500 RenaissanceRe Holdings Ltd. 4,486,562
117,900 Terra Nova (Bermuda) Holdings Ltd. 2,976,975
------------
28,919,137
------------
MACHINERY/ENGINEERING -- 3.0%
109,246 Albany International Corp. 2,068,847
155,500 Flowserve Corp. 2,575,469
------------
4,644,316
------------
MANUFACTURING -- 6.3%
135,700 Artesyn Technologies, Inc.* 1,899,800
224,200 Baldwin Technology, Inc. (Class A)* 1,261,125
212,000 Guilford Mills, Inc. 3,537,750
187,700 Lydall, Inc.* 2,228,938
20,100 Precision Castparts Corp. 889,425
------------
9,817,038
------------
PRINTING/PUBLISHING -- 3.0%
338,700 Hollinger International, Inc. 4,720,631
------------
REAL ESTATE -- 0.1%
5,689 Security Capital Group, Inc. (Class B)* 77,157
------------
TECHNOLOGY -- 10.7%
58,500 Adaptec, Inc.* 1,027,406
82,900 Harman International Industries, Inc. 3,160,563
147,800 Unitrode Corp.* 2,586,500
153,500 Volt Information Sciences, Inc.* 3,463,344
229,400 Wang Laboratories, Inc.* 6,365,850
------------
16,603,663
------------
TEXTILES/APPAREL -- 3.4%
411,800 Paxar Corp.* 3,680,462
49,500 Westpoint Stevens, Inc. * 1,562,344
------------
5,242,806
------------
TRANSPORTATION -- 3.9%
154,600 Air Express International Corp. 3,362,550
163,650 Interpool, Inc. 2,741,138
------------
6,103,688
------------
Total Common Stocks
(cost -- $139,676,683) 135,800,171
------------
Total Investments
(cost -- $159,194,386) 99.9% $155,317,874
Other Assets in Excess of Liabilities 0.1 188,060
----- ------------
Total Net Assets 100.0% $155,505,934
----- ------------
----- ------------
MANAGED PORTFOLIO
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY NOTES -- 0.3%
$ 800,000 Federal Farm Credit Bank,
5.06%, 1/12/99 $ 798,763
1,135,000 Federal Home Loan Bank,
5.125%, 1/22/99 1,131,607
------------
Total U.S. Government Agency Notes
(cost -- $1,930,370) 1,930,370
------------
SHORT-TERM CORPORATE NOTES -- 17.7%
AUTOMOTIVE -- 3.7%
Ford Motor Credit Corp.,
1,865,000 4.88%, 2/1/99 1,857,163
4,565,000 5.26%, 1/11/99 4,558,330
18,250,000 5.41%, 1/5/99 18,239,030
3,910,000 General Motors Acceptance Corp.,
5.28%, 1/5/99 3,907,706
------------
28,562,229
------------
INSURANCE -- 2.8%
21,975,000 Prudential Funding Corp.,
4.70%, 2/4/99 21,877,455
------------
MACHINERY/ENGINEERING -- 3.5%
27,400,000 Deere (John) Capital Corp.,
5.24%, 1/11/99 27,360,118
------------
MISCELLANEOUS FINANCIAL SERVICES -- 1.1%
1,100,000 American Express Credit Corp.,
5.15%, 1/15/99 1,097,797
7,470,000 Household Finance Corp.,
5.08%, 1/19/99 7,451,026
------------
8,548,823
------------
OIL/GAS -- 2.5%
19,305,000 Chevron USA, Inc.,
5.30%, 1/12/99 19,273,737
------------
TECHNOLOGY -- 4.1%
31,930,000 IBM Credit Corp.,
5.17%, 1/19/99 31,847,461
------------
Total Short-Term Corporate Notes
(cost -- $137,469,823) 137,469,823
------------
U.S. TREASURY NOTES AND BONDS -- 0.1%
700,000 6.25%, 8/15/23 782,362
297,500 7.875%, 8/15/01 320,741
------------
Total U.S. Treasury Notes and Bonds
(cost -- $878,024) 1,103,103
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 81.6%
AEROSPACE/DEFENSE -- 3.3%
88,700 AlliedSignal, Inc. 3,930,519
672,400 Boeing Co. 21,937,050
------------
25,867,569
------------
* Non-income producing security
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BANKING -- 13.9%
477,000 BankBoston Corp. $ 18,573,187
759,500 Citigroup, Inc. 37,595,250
32,000 M & T Bank Corp. 16,606,000
885,000 Wells Fargo & Co. 35,344,688
------------
108,119,125
------------
CHEMICALS -- 7.6%
130,000 Dow Chemical Co. 11,821,875
532,000 du Pont (E.I.) de Nemours & Co. 28,229,250
119,200 Hercules, Inc. 3,263,100
240,000 Monsanto Co. 11,400,000
200,000 Solutia, Inc. 4,475,000
------------
59,189,225
------------
CONGLOMERATES -- 4.4%
270,000 Minnesota Mining &
Manufacturing Co. 19,203,750
167,600 Tenneco, Inc. 5,708,875
125,000 Textron, Inc. 9,492,187
------------
34,404,812
------------
CONSUMER PRODUCTS -- 1.4%
474,500 Mattel, Inc. 10,824,531
------------
DRUGS & MEDICAL PRODUCTS -- 0.7%
120,000 Becton, Dickinson & Co. 5,122,500
------------
ENERGY -- 1.1%
300,000 Unocal Corp. 8,756,250
------------
FOOD SERVICES -- 9.1%
617,000 Diageo plc ADR 28,536,250
547,200 McDonald's Corp. 41,929,200
------------
70,465,450
------------
INSURANCE -- 5.8%
434,100 ACE Ltd. 14,949,319
396,600 EXEL Ltd. 29,745,000
------------
44,694,319
------------
MACHINERY/ENGINEERING -- 1.9%
329,500 Caterpillar, Inc. 15,157,000
------------
MANUFACTURING -- 2.8%
550,000 ITT Industries, Inc. 21,862,500
------------
MEDIA/BROADCASTING -- 7.8%
630,000 News Corp. Ltd. ADR + 15,553,125
730,000 Time Warner, Inc. 45,305,625
------------
60,858,750
------------
MISCELLANEOUS FINANCIAL SERVICES -- 6.5%
780,000 Federal Home Loan Mortgage Corp. 50,261,250
------------
PAPER PRODUCTS -- 1.8%
351,000 Champion International Corp. 14,215,500
------------
PRINTING/PUBLISHING -- 2.1%
350,000 Donnelley (R.R.) & Sons Co. 15,334,375
20,000 Reed International plc ADR 630,000
------------
15,964,375
------------
REAL ESTATE -- 0.1%
1,399 Security Capital Group Inc., (Class A) * 923,065
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
TECHNOLOGY -- 1.3%
240,000 Computer Associates International, Inc. $ 10,230,000
------------
TELECOMMUNICATIONS -- 4.9%
250,200 Sprint Corp. (FON Group) 21,048,075
257,800 US West, Inc. 16,660,325
------------
37,708,400
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 3.3%
475,000 Philip Morris Cos., Inc. 25,412,500
------------
TRANSPORTATION -- 1.8%
240,000 UAL Corp.* 14,325,000
------------
Total Common Stocks
(cost -- $562,602,211) 634,362,121
------------
Total Investments
(cost -- $702,880,428) 99.7% $774,865,417
Other Assets in Excess of Liabilities 0.3 2,221,706
----- ------------
Total Net Assets 100.0% $777,087,123
----- ------------
----- ------------
U.S. GOVERNMENT INCOME PORTFOLIO
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
U.S. TREASURY NOTES AND BONDS -- 50.1%
475,000 5.625%, 10/31/99 478,563
375,000 5.875%, 11/30/01 387,656
95,000 6.25%, 4/30/01 98,340
1,450,000 6.50%, 5/31/02 1,530,881
885,000 6.50%, 10/15/06 981,660
1,450,000 7.25%, 8/15/22 1,804,800
------------
Total U.S. Treasury Notes and Bonds
(cost -- $5,152,219) 5,281,900
------------
U.S. GOVERNMENT AGENCY NOTES -- 33.5%
75,000 Federal Farm Credit Bank,
8.65%, 10/1/99 77,004
Federal Home Loan Bank,
345,000 6.90%, 2/7/07 378,800
100,000 8.09%, 12/28/04 114,250
155,000 8.60%, 8/25/99 158,463
Federal Home Loan Mortgage Corp.,
65,000 4.85%, 2/2/99 64,720
175,000 6.22%, 3/24/03 182,082
300,000 7.71%, 6/21/04 303,561
125,000 7.75%, 11/7/01 133,848
150,000 8.115%, 1/31/05 171,843
Federal National Mortgage Assoc.,
95,000 5.16%, 1/15/99 94,809
550,000 6.00%, 5/15/08 580,591
150,000 9.20%, 9/11/00 160,101
100,000 Student Loan Marketing Assoc., 7.20%, 11/9/00 103,812
1,000,000 Tennessee Valley Authority, 5.375%, 11/13/08 1,002,660
------------
Total U.S. Government Agency Notes
(cost -- $3,457,686) 3,526,544
------------
* Non-income producing security
+ Preferred stock
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (concluded)
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES -- 13.2%
Federal National Mortgage Assoc.,
$ 147,301 6.00%, 3/1/13 $ 147,669
147,370 6.50%, 5/1/26 148,382
191,623 6.50%, 1/1/28 192,880
318,520 6.50%, 2/1/28 320,610
2,975 9.00%, 8/1/02 3,034
8,866 9.50%, 12/1/06 9,144
21,359 9.50%, 3/1/19 22,934
43,455 9.50%, 12/1/19 46,496
Government National Mortgage Assoc.,
328,734 7.00%, 3/15/28 336,334
162,744 7.00%, 4/15/28 166,507
------------
Total Mortgage-Related Securities
(cost -- $1,368,586) 1,393,990
------------
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
CORPORATE NOTES -- 2.2%
CONGLOMERATES -- 1.0%
$ 100,000 General Electric Capital Corp., 8.375%, 3/1/01 $ 106,627
------------
MISCELLANEOUS FINANCIAL SERVICES -- 1.2%
125,000 International Lease Finance Corp., 6.125%,
11/1/99 125,646
------------
Total Corporate Notes
(cost -- $226,678) 232,273
------------
Total Investments
(cost -- $10,205,169) 99.0% $ 10,434,707
Other Assets in Excess of Liabilities 1.0 107,255
----- ------------
Total Net Assets 100.0% $ 10,541,962
----- ------------
----- ------------
See accompanying notes to financial statements.
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value
(cost -- $41,093,552,
$159,194,386, $702,880,428,
and $10,205,169,
respectively)............... $50,289,043 $155,317,874 $774,865,417 $ 10,434,707
Cash.......................... 7,456 2,392 7,521 996
Receivable from investments
sold........................ 260,030 443,020 1,708,517 --
Receivable from fund shares
sold........................ 197,790 142,176 267,323 --
Dividends receivable.......... 35,153 61,146 528,204 --
Interest receivable........... -- -- 25,374 122,339
Receivable from investment
adviser..................... -- -- -- 1,478
Other assets.................. 504 1,262 5,598 203
----------- ------------ ------------ ------------
Total Assets...... 50,789,976 155,967,870 777,407,954 10,559,723
----------- ------------ ------------ ------------
LIABILITIES
Payable for investments
purchased................... 2,062,276 347,492 -- --
Payable for fund shares
redeemed.................... -- 79,717 194,272 6,025
Investment advisory fee
payable..................... 2,106 6,646 32,903 --
Other payables and accrued
expenses.................... 14,883 28,081 93,656 11,736
----------- ------------ ------------ ------------
Total
Liabilities.... 2,079,265 461,936 320,831 17,761
----------- ------------ ------------ ------------
Total Net
Assets......... $48,710,711 $155,505,934 $777,087,123 $ 10,541,962
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
COMPOSITION OF NET ASSETS
Par value ($.01 per share).... $ 12,588 $ 67,314 $ 177,669 $ 9,893
Paid-in-capital in excess of
par......................... 36,745,860 159,773,829 670,274,758 10,303,113
Accumulated undistributed net
investment income........ 496,362 978,615 11,467,176 --
Accumulated net realized gain
(loss)
on investments........... 2,260,410 (1,437,312) 23,182,531 (582)
Net unrealized appreciation
(depreciation)
on investments........... 9,195,491 (3,876,512) 71,984,989 229,538
----------- ------------ ------------ ------------
Total Net
Assets......... $48,710,711 $155,505,934 $777,087,123 $ 10,541,962
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Fund shares outstanding....... 1,258,763 6,731,406 17,766,949 989,297
----------- ------------ ------------ ------------
Net asset value per share..... $ 38.70 $ 23.10 $ 43.74 $ 10.66
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign
withholding taxes of
$5,901, $0, $13,926, and
$0, respectively)........ $ 471,848 $ 985,845 $ 9,559,315 $ --
Interest.................... 367,387 1,183,857 7,298,976 494,514
---------- ------------ ----------- ---------
Total investment
income................. 839,235 2,169,702 16,858,291 494,514
---------- ------------ ----------- ---------
OPERATING EXPENSES
Investment advisory fees.... 291,218 1,089,755 5,140,492 49,774
Custodian fees.............. 18,905 37,359 78,062 19,574
Trustees' fees and
expenses................. 12,509 26,040 38,124 11,825
Audit fees.................. 8,786 10,506 24,053 8,173
Transfer and dividend
disbursing agent fees.... 8,207 11,076 28,080 7,286
Reports and notices to
shareholders............. 2,298 12,665 69,154 742
Legal fees.................. 716 2,550 12,763 165
Miscellaneous............... 1,062 2,101 2,870 1,711
---------- ------------ ----------- ---------
Total operating
expenses............... 343,701 1,192,052 5,393,598 99,250
Less: Investment advisory
fees waived............ -- -- -- (16,027)
Less: Expenses offset.... (828) (969) (2,491) (265)
---------- ------------ ----------- ---------
Net operating
expenses............ 342,873 1,191,083 5,391,107 82,958
---------- ------------ ----------- ---------
Net investment
income.............. 496,362 978,619 11,467,184 411,556
---------- ------------ ----------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS -- NET
Net realized gain (loss) on
investments.............. 2,269,575 (1,428,318) 23,587,489 151,330
Net change in unrealized
appreciation
(depreciation) on
investments.............. 1,277,757 (13,507,408) (185,933) 89,811
---------- ------------ ----------- ---------
Net realized gain
(loss) and change in
unrealized
appreciation
(depreciation) on
investments......... 3,547,332 (14,935,726) 23,401,556 241,141
---------- ------------ ----------- ---------
Net increase (decrease) in net
assets resulting from
operations.................. $4,043,694 ($13,957,107) $34,868,740 $ 652,697
---------- ------------ ----------- ---------
---------- ------------ ----------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 496,362 $ 311,417
Net realized gain (loss) on investments....................... 2,269,575 1,335,830
Net change in unrealized appreciation (depreciation) on
investments................................................. 1,277,757 4,175,591
----------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ 4,043,694 5,822,838
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (311,417) (188,895)
Net realized gains............................................ (1,344,997) (672,432)
----------- -----------
Total dividends and distributions to shareholders........... (1,656,414) (861,327)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 25,006,798 10,880,025
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- --
Reinvestment of dividends and distributions................... 1,656,414 861,327
Cost of shares redeemed....................................... (9,159,759) (7,725,883)
----------- -----------
Net increase in net assets from fund share transactions..... 17,503,453 4,015,469
----------- -----------
Total increase in net assets............................ 19,890,733 8,976,980
NET ASSETS
Beginning of year............................................. 28,819,978 19,842,998
----------- -----------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $48,710,711 $28,819,978
----------- -----------
----------- -----------
SHARES ISSUED AND REDEEMED
Issued........................................................ 673,182 328,269
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- --
Issued in reinvestment of dividends and distributions......... 44,976 28,807
Redeemed...................................................... (248,628) (227,653)
----------- -----------
Net increase................................................ 469,530 129,423
----------- -----------
----------- -----------
<CAPTION>
SMALL CAP PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 978,619 $ 397,656
Net realized gain (loss) on investments....................... (1,428,318) 4,341,925
Net change in unrealized appreciation (depreciation) on
investments................................................. (13,507,408) 6,375,677
------------- -------------
Net increase (decrease) in net assets resulting from
operations................................................ (13,957,107) 11,115,258
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (397,659) (226,926)
Net realized gains............................................ (4,342,119) (1,600,321)
------------- -------------
Total dividends and distributions to shareholders........... (4,739,778) (1,827,247)
------------- -------------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 75,017,090 70,252,565
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- --
Reinvestment of dividends and distributions................... 4,739,778 1,827,247
Cost of shares redeemed....................................... (16,118,555) (5,059,988)
------------- -------------
Net increase in net assets from fund share transactions..... 63,638,313 67,019,824
------------- -------------
Total increase in net assets............................ 44,941,428 76,307,835
NET ASSETS
Beginning of year............................................. 110,564,506 34,256,671
------------- -------------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $ 155,505,934 $ 110,564,506
------------- -------------
------------- -------------
SHARES ISSUED AND REDEEMED
Issued........................................................ 3,039,039 2,800,876
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- --
Issued in reinvestment of dividends and distributions......... 177,254 83,857
Redeemed...................................................... (677,160) (207,710)
------------- -------------
Net increase................................................ 2,539,133 2,677,023
------------- -------------
------------- -------------
<CAPTION>
MANAGED PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 11,467,184 $ 4,115,641
Net realized gain (loss) on investments....................... 23,587,489 16,103,603
Net change in unrealized appreciation (depreciation) on
investments................................................. (185,933) 32,559,342
------------- -------------
Net increase (decrease) in net assets resulting from
operations................................................ 34,868,740 52,778,586
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (4,115,649) (2,161,818)
Net realized gains............................................ (16,508,556) (6,639,642)
------------- -------------
Total dividends and distributions to shareholders........... (20,624,205) (8,801,460)
------------- -------------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 339,789,141 260,261,576
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- --
Reinvestment of dividends and distributions................... 20,624,205 8,801,460
Cost of shares redeemed....................................... (64,361,982) (26,977,032)
------------- -------------
Net increase in net assets from fund share transactions..... 296,051,364 242,086,004
------------- -------------
Total increase in net assets............................ 310,295,899 286,063,130
NET ASSETS
Beginning of year............................................. 466,791,224 180,728,094
------------- -------------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $ 777,087,123 $ 466,791,224
------------- -------------
------------- -------------
SHARES ISSUED AND REDEEMED
Issued........................................................ 7,796,148 6,451,958
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- --
Issued in reinvestment of dividends and distributions......... 476,642 243,943
Redeemed...................................................... (1,520,543) (672,569)
------------- -------------
Net increase................................................ 6,752,247 6,023,332
------------- -------------
------------- -------------
<CAPTION>
U.S. GOVERNMENT
INCOME PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 411,556 $ 328,172
Net realized gain (loss) on investments....................... 151,330 13,044
Net change in unrealized appreciation (depreciation) on
investments................................................. 89,811 124,161
----------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ 652,697 465,377
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (411,556) (328,172)
Net realized gains............................................ (149,402) (7,663)
----------- -----------
Total dividends and distributions to shareholders........... (560,958) (335,835)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 5,717,541 2,093,607
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- 2,172,639
Reinvestment of dividends and distributions................... 560,300 335,840
Cost of shares redeemed....................................... (2,810,893) (1,170,351)
----------- -----------
Net increase in net assets from fund share transactions..... 3,466,948 3,431,735
----------- -----------
Total increase in net assets............................ 3,558,687 3,561,277
NET ASSETS
Beginning of year............................................. 6,983,275 3,421,998
----------- -----------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $10,541,962 $ 6,983,275
----------- -----------
----------- -----------
SHARES ISSUED AND REDEEMED
Issued........................................................ 535,354 202,361
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- 212,587
Issued in reinvestment of dividends and distributions......... 52,582 32,289
Redeemed...................................................... (263,013) (112,598)
----------- -----------
Net increase................................................ 324,923 334,639
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 Equity Portfolio, the Small Cap Portfolio, the Managed Portfolio and the
U.S. Government Income Portfolio (collectively, the "Portfolios") are four of
six portfolios offered in the Trust. OpCap Advisors (the "Adviser"), a
subsidiary of Oppenheimer Capital, serves as the Trust's investment adviser. The
accompanying financial statements and notes thereto are those of the Portfolios.
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. Each portfolio is authorized to issue an unlimited number
of shares of beneficial interest at $.01 par value.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
securities 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 Trust'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
The Equity, Small Cap and Managed Portfolios: Dividends and distributions
to shareholders from net investment income and net realized capital gains, if
any, are declared and paid at least annually. The U.S. Government Income
Portfolio: 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 Trust's portfolios record dividends and distributions to its
shareholders on the ex-dividend date. The amount of dividends and distributions
is 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
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS ( CONTINUED)
DECEMBER 31, 1998
(D) DIVIDENDS AND DISTRIBUTIONS (CONCLUDED)
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. At December 31, 1998, the Trust's portfolios 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 on another reasonable basis.
(F) USE OF ESTIMATES
The preparation of the 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) EXPENSES OFFSET
The Portfolios benefit 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 Portfolios.
(H) TRUSTEES' FEES AND EXPENSES
On October 19, 1998, the Trust adopted a retirement plan that provides for
payments upon retirement to independent trustees based on the average annual
compensation paid to them during their five highest paid years of service. An
independent trustee must serve for a minimum of seven years (or such lessor
period as may be approved by the board) to become eligible to receive benefits.
The effective date of the retirement plan is January 1, 1999, therefore, no
expenses have been accrued for the year ended December 31, 1998.
(2) INVESTMENT ADVISORY FEE
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of each Portfolio's net assets as of
the close of business each day at the following annual rates: .80% for each of
the Equity, Small Cap and Managed Portfolios on the first $400 million, .75% on
the next $400 million and .70% thereafter; and .60% for the U.S. Government
Income Portfolio. The Adviser is contractually obligated to waive that portion
of each advisory fee and to assume any necessary expense to limit total
operating expenses of each Portfolio to 1.00% of average net assets (net of
expenses offset) on an annual basis. For the year ended December 31, 1998, the
Adviser waived $16,027 in investment advisory fees for the U.S. Government
Income Portfolio.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1998, purchases and sales of investment
securities, other than short-term securities, were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME
PORTOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Purchases...................................... $21,196,589 $112,798,438 $469,808,429 $ 9,985,862
Sales.......................................... 8,644,843 59,424,804 192,301,465 6,536,135
</TABLE>
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS ( CONCLUDED)
DECEMBER 31, 1998
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
At December 31, 1998, the composition of unrealized appreciation
(depreciation) on investment securities and the cost of investments for Federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
APPRECIATION (DEPRECIATION) NET TAX COST
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Equity Portfolio................................. $ 10,338,795 ($ 1,143,304) $ 9,195,491 $ 41,093,552
Small Cap Portfolio.............................. 15,504,699 (19,536,141) (4,031,442) 159,349,316
Managed Portfolio................................ 110,407,000 (39,173,459) 71,233,541 703,631,876
U.S. Government Income Portfolio................. 238,433 (9,477) 228,956 10,205,751
</TABLE>
(5) CAPITAL LOSS CARRYFORWARD
At December 31, 1998, the Small Cap Portfolio's accumulated net realized
capital losses available as a reduction against future net realized capital
gains for Federal income tax purposes were $1,282,383, which will expire in
2006. To the extent that these capital loss carryforwards are used to offset
future net realized gains, the gains offset will not be distributed to
shareholders.
<PAGE>
OCC ACCUMULATION TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO
Year Ended
December 31, 1998..... $36.52 $0.39 $3.84 $4.23 ($0.39) ($1.66)
December 31, 1997..... 30.07 0.39 7.34 7.73 (0.28) (1.00)
December 31, 1996..... 25.05 0.21 5.52 5.73 (0.24) (0.47)
December 31, 1995..... 18.12 0.31 6.71 7.02 (0.09) --
September 16, 1994 (3)
to December 31,
1994.................. 18.57 0.09 (0.54) (0.45) -- --
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO
Year Ended
December 31, 1998..... ($ 2.05) $38.70 11.9% $48,711 0.94%(2) 1.36%(2) 29%
December 31, 1997..... (1.28) 36.52 26.6% 28,820 0.99% 1.25% 32%
December 31, 1996..... (0.71) 30.07 23.4% 19,843 0.93%(1) 1.29%(1) 36%
December 31, 1995..... (0.09) 25.05 38.9% 9,036 0.72%(1) 1.74%(1) 31%
September 16, 1994 (3)
to December 31,
1994.................. -- 18.12 (2.4%) 4,281 0.72%(1,4) 1.80%(1,4) 6%
</TABLE>
(1) 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.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SMALL CAP PORTFOLIO
Year Ended
December 31, 1998..... $26.37 $0.14 ($2.38) ($2.24) ($0.09) ($0.94)
December 31, 1997..... 22.61 0.08 4.73 4.81 (0.13) (0.92)
December 31, 1996..... 19.91 0.14 3.45 3.59 (0.25) (0.64)
December 31, 1995..... 17.38 0.26 2.37 2.63 (0.05) (0.05)
September 16, 1994 (3)
to December 31,
1994.................. 17.49 0.06 (0.17) (0.11) -- --
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
SMALL CAP PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998..... ($ 1.03) $23.10 (9.0%) $155,506 0.88%(2) 0.72%(2) 51%
December 31, 1997..... (1.05) 26.37 22.2% 110,565 0.97% 0.64% 68%
December 31, 1996..... (0.89) 22.61 18.7% 34,257 0.93%(1) 1.03%(1) 50%
December 31, 1995..... (0.10) 19.91 15.2% 16,004 0.74%(1) 1.75%(1) 69%
September 16, 1994 (3)
to December 31,
1994.................. -- 17.38 (0.6%) 9,210 0.74%(1,4) 1.22%(1,4) 32%
</TABLE>
(1) 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.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED PORTFOLIO
Year Ended
December 31, 1998..... $42.38 $0.60 $2.40 $3.00 ($0.33) ($1.31)
December 31, 1997..... 36.21 0.34 7.45 7.79 (0.40) (1.22)
December 31, 1996..... 30.14 0.43 6.31 6.74 (0.41) (0.26)
December 31, 1995..... 20.83 0.42 9.02 9.44 (0.13) --
September 16, 1994 (3)
to December 31,
1994.................. 21.80 0.14 (1.11) (0.97) -- --
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
MANAGED PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998..... ($ 1.64) $43.74 7.1% $777,087 0.82%(2) 1.74%(2) 37%
December 31, 1997..... (1.62) 42.38 22.3% 466,791 0.87% 1.42% 32%
December 31, 1996..... (0.67) 36.21 22.8% 180,728 0.84%(1) 1.66%(1) 27%
December 31, 1995..... (0.13) 30.14 45.6% 99,188 0.66%(1) 1.85%(1) 22%
September 16, 1994 (3)
to December 31,
1994.................. -- 20.83 (4.4%) 54,943 0.66%(1,4) 2.34%(1,4) 8%
</TABLE>
(1) 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.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME PORTFOLIO
Year Ended
December 31, 1998..... $10.51 $0.53 $0.31 $0.84 ($0.53) ($0.16)
December 31, 1997..... 10.38 0.57 0.14 0.71 (0.57) (0.01)
December 31, 1996..... 10.62 0.55 (0.24) 0.31 (0.55) --
January 3, 1995 (3)
to December 31,
1995.................. 10.00 0.60 0.68 1.28 (0.60) (0.06)
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
U.S. GOVERNMENT INCOME P
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998..... ($ 0.69) $10.66 8.1% $10,542 1.00%(1,2) 4.96%(1,2) 80%
December 31, 1997..... (0.58) 10.51 7.0% 6,983 0.93%(1) 5.51%(1) 80%
December 31, 1996..... (0.55) 10.38 3.0% 3,422 0.96%(1) 5.27%(1) 31%
January 3, 1995 (3)
to December 31,
1995.................. (0.66) 10.62 13.1% 1,442 0.75%(1,4) 5.75%(1,4) 65%
</TABLE>
(1) 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 1.19% and 4.77%, respectively, for the
year ended December 31, 1998, 1.06% and 5.37%, respectively, for the year
ended December 31, 1997, 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.
- ------------------
(2) Average net assets for the year ended December 31, 1998, were $36,402,283,
$136,219,417, $658,732,358, and $8,295,751 for the Equity, Small Cap,
Managed, and U.S. Government Income Portfolios, respectively.
(3) Commencement of operations
(4) Annualized
(5) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(6) 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).
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust
In our opinion, the accompanying statements of assets and liabilities,
including the schedules 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, the Small Cap
Portfolio, the Managed Portfolio and the U.S. Government Portfolio (four of the
six portfolios constituting OCC Accumulation Trust, hereafter referred to as the
"Trust") at December 31, 1998, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of 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 Trust'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, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 12, 1999
<PAGE>
OCC ACCUMULATION TRUST
TWO WORLD FINANCIAL CENTER
NEW YORK, NY 10281
TRUSTEES AND PRINCIPAL OFFICERS
<TABLE>
<S> <C>
Joseph M. LaMotta........................................ Trustee, President
Paul Y. Clinton.......................................... Trustee
Thomas W. Courtney....................................... Trustee
Lacy B. Herrmann......................................... Trustee
George Loft.............................................. Trustee
Bernard H. Garil......................................... Vice President
Gavin Albert............................................. Vice President and Portfolio Manager
John C. Giusio, Jr....................................... Vice President
Richard J. Glasebrook, II................................ Vice President and Portfolio Manager
Louis Goldstein.......................................... Vice President and Portfolio Manager
Alan Gutmann............................................. Vice President and Portfolio Manager
Benjamin D. Gutstein..................................... Vice President and Portfolio Manager
Vikki Hanges............................................. Vice President and Portfolio Manager
Timothy J. McCormack..................................... Vice President and Portfolio Manager
Eileen P. Rominger....................................... Vice President and Portfolio Manager
James Sheldon............................................ Vice President and Portfolio Manager
Richard L. Peteka........................................ Treasurer
Deborah Kaback........................................... Secretary
Robert J. Brault......................................... Assistant Treasurer
</TABLE>
INVESTMENT ADVISER
OpCap Advisors
Two World Financial Center
New York, NY 10281
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 1978
Boston, MA 02105
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
This report is authorized for distribution only
to shareholders and to others who have received
a copy of this Trust's prospectus.
