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As filed with the Securities and Exchange Commission on November 18,
1999
Registration No. 33-78944
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 11 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 13
OCC ACCUMULATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE WORLD FINANCIAL CENTER, NEW YORK, NY 10281
(Address of Principal Executive Offices)
(212) 739-3191
(Registrant's Telephone Number)
Frank Poli, Esq.
Oppenheimer Capital
1345 Avenue of the Americas
New York, NY 10105-4800
(Name and Address of Agent for Service)
Copy to:
Ronald M. Feiman, Esq.
Mayer, Brown & Platt
1675 Broadway
New York, NY
10019-5820
It is proposed that this filing will become effective:
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[ ] immediately upon filing pursuant to [ ] on May 1, 1999 pursuant to
paragraph (b) paragraph (b)
[ ] On October 15, 1997 pursuant to [ ] 60 days after filing pursuant to paragraph (a)(1)
paragraph (a)(1)
[X] 75 days after filing pursuant to [ ] on May 1, 1999 pursuant to
paragraph (a)(2) paragraph (a)(2) of Rule 485
</TABLE>
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CROSS REFERENCE SHEET
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<CAPTION>
Form N-1A
Item
Part A Caption Prospectus
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1. (a) Front Cover Page Front Cover Page
(b) Back Cover Page Back Cover Page
2. Risk/Return Summary: Risk/Return Summary
Investments, Principal Investment
Risks and Performance Strategies and Related Risks
3. Risk/Return Summary: Fee Table Risk/Return Summary
4. Investment Objectives, Principal
Investment Strategies, and Related Risks Principal Investment Strategies and Related Risks
5. Management's Discussion of Fund N/A
Performance
6. Management, Organization, and Capital Fund Management; Distributions and Taxes
Structure
7. Shareholder Information Shareholder Information
8. Distribution Arrangements N/A
9. Financial Highlights Information Financial Highlights
Part B Caption Statement of Additional Information
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10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History Additional Information--Description of the Fund
12. Description of the Fund and Investment of the Fund's Assets; Investment
</TABLE>
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<S> <C> <C>
Its Investments and Risks Restrictions
13. Management of the Fund Investment Management and Other Services
14. Control Persons and Principal Holders Trustees and Officers; Control Persons
of Securities
15. Investment Advisory and Other Services Investment Management and Other Services
16. Brokerage Allocation and Other Investment Management and Other Services -
Purchases Portfolio Transactions
17. Capital Stock and Other Securities Determination of Net Asset Value; Capital Stock;
Additional Information-Possible Additional Series
18. Purchase, Redemption and Pricing of Determination of Net Asset Value
Securities
19. Taxation of the Fund Dividends, Distributions and Taxes
20. Underwriters Investment Management and Other Services
21. Calculations of Performance Data Performance Data
22. Financial Statements Financial Statements
</TABLE>
<PAGE>
OCC ACCUMULATION TRUST
Prospectus _____________, 2000
OCC ACCUMULATION TRUST (the "Fund") is an open-end investment company with the
following investment portfolios (the "Portfolios").
Equity Portfolio
Blended Equity Portfolio
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Target Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Innovation Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
Shares of the Portfolios are sold only to variable accounts of certain life
insurance companies as an investment vehicle for their variable annuity and
variable life insurance contracts and to qualified pension and retirement plans.
The Securities and Exchange Commission has not approved any Portfolio's
shares as an investment or determined whether this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Page
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3
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RISK/RETURN SUMMARY.....................................................
PRINCIPAL INVESTMENT STRATEGIES.........................................
RISKS...................................................................
INVESTMENT POLICIES.....................................................
FUND MANAGEMENT.........................................................
SHARE PRICE.............................................................
DISTRIBUTIONS AND TAXES.................................................
YEAR 2000 ISSUES........................................................
FINANCIAL HIGHLIGHTS....................................................
SMALL CAP PORTFOLIO.....................................................
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RISK/RETURN SUMMARY
Investment Goals... Equity Portfolio............ Long term capital appreciation
Blended Equity Portfolio.... Long term capital appreciation
Large Cap Growth Portfolio.. Long term capital appreciation
Small Cap Growth Portfolio.. Capital appreciation
Target Portfolio............ Capital appreciation
Mid Cap Portfolio........... Long term capital appreciation
Small Cap Portfolio......... Capital appreciation
Innovation Portfolio........ Capital appreciation
Global Equity Portfolio..... Long term capital appreciation
Managed Portfolio........... Growth of capital over time
Balanced Portfolio.......... Growth of capital and
investment income
U.S. Gov't Income Portfolio. High current income and
protection of capital
Principal Investment
Strategies . The Equity Portfolio invests primarily in equity
securities listed on the New York Stock Exchange.
. The Blended Equity Portfolio invests generally in
equity securities of companies with market
capitalizations of at least $5 billion that the
adviser believes offer growth opportunities and in
equity securities of companies with market
capitalizations of more than $2 billion that the
adviser believes are undervalued relative to their
industry group.
. The Large Cap Growth Portfolio invests primarily
in equity securities of companies with market
capitalizations of at least $5 billion.
5
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. The Small Cap Growth Portfolio invests primarily
in equity securities of companies with market
capitalizations under $2 billion.
. The Target Portfolio invests primarily in equity
securities of companies with market
capitalizations between $1 billion and $10
billion.
. The Mid Cap Portfolio invests primarily in equity
securities of companies with market
capitalizations between $500 million and $5
billion.
. The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
. The Innovation Portfolio invests primarily in
equity securities of companies which use
innovative technologies to gain a strategic
competitive advantage in their industry, as well
as companies that provide and service those
technologies.
. The Global Equity Portfolio invests primarily in
equity securities on a worldwide basis and may
invest in U.S. or foreign fixed income
securities.
. The Managed Portfolio invests in common stocks,
bonds and cash equivalents, allocated based on the
investment adviser's judgment.
. The Balanced Portfolio invests in common stocks,
preferred stocks, securities convertible into
common stock and debt securities.
. The U.S. Government Income Portfolio invests
solely in debt obligations including mortgage-
backed securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Investment
Philosophy . OpCap Advisors is the investment adviser to all of
the Portfolios. OpCap Advisors has retained PIMCO
Equity Advisors, a division of PIMCO Advisors, as
sub-adviser to the Large Cap Growth, Small Cap
Growth, Target and Innovation Portfolios, and for
a portion of the assets of the Blended Equity
Portfolio. OpCap Advisors has retained Pacific
Investment Management Company ("PIMCO") as sub-
adviser for a portion of the assets of the Managed
Portfolio.
For the equity investments it manages directly,
i.e., the Equity, Mid Cap, Small Cap, Global
Equity and Balanced Portfolios and the portion of
the assets of the Blended Equity and Managed
Portfolios not sub-advised by its other
affiliates, OpCap Advisors applies principles of
value investing, although the individual portfolio
managers implement those principles differently.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
. A company's ability to generate earnings that
contribute to shareholder value. OpCap Advisors
considers discretionary cash flow--cash that
remains after a company spends what is needed
to sustain its industrial position--as a
primary determinant of a company's potential to
add economic value.
. Price -- OpCap Advisors looks for market
undervaluation great enough to offer the
potential for upside reward with what it
believes is modest downward risk.
The PIMCO Equity Advisors
division of PIMCO Advisors ("PIMCO Equity
Advisors") acts as sub-adviser to the Large Cap
Growth, Small Cap Growth, Target and Innovation
Portfolios (the "Growth-Oriented Portfolios") and
has been retained by OpCap Advisors to act as sub-
adviser for a portion of the investments of the
Blended Equity Portfolio.
PIMCO Equity Advisors'
investment philosophy focuses on the wealth-
creating characteristics of a growing business. By
combining the characteristics of growth, quality,
and time, its investment process seeks to capture
the powerful compounding effect of a growing
enterprise. PIMCO Equity Advisors seeks to invest
in superior companies and then monitor accounts to
ensure that it maintains a portfolio of the
highest-quality companies available. The
investment process includes both quantitative and
qualitative screens at identifying candidate
securities.
PIMCO Equity Advisors aims
to significantly outperform the relevant market
index over the long term and to control risk
relative to the market. There can be no assurance
that it will achieve these goals.
PIMCO acts as the sub-adviser to the Managed
Portfolio. In selecting securities for the Managed
Portfolio, PIMCO develops an outlook for interest
rates, currency exchange rates and the economy;
analyzes credit and call risks, and uses other
security selection techniques. The proportion of
the Portfolio's assets committed to investment in
securities with particular characteristics (such
as quality, section interest rate or maturity)
varies based on PIMCO's outlook for the U.S.
economy and the economies of other countries in
the world, the financial markets and other
factors.
PIMCO attempts to identify areas of the bond
market that are undervalued relative to the rest
of the market. PIMCO identifies these areas by
grouping bonds into the following sectors: money
markets, governments, corporates, mortgages,
asset-backed and international. Sophisticated
proprietary software then assists in evaluating
sectors and pricing specific securities. Once
investment opportunities are identified, PIMCO
will shift assets among sectors depending upon
changes in relative valuations and credit spreads.
There is no guarantee that PIMCO's security
selection techniques will produce the desired
results.
OpCap Advisors uses fundamental company analysis
to select securities. Fundamental company analysis
involves intensive evaluation of historic
financial data including:
. Company financial statements
. Market share analysis
. Unit volume growth
. Barriers to entry
. Pricing policies
. Management record.
OpCap Advisors uses
fundamental company analysis to select companies
they believe have one or more of the following
characteristics:
. substantial and growing discretionary cash
flow
. strong shareholder value-oriented management
. valuable consumer or commercial franchises
. high returns on capital
. favorable price to intrinsic value
relationship.
In selecting debt securities, OpCap Advisors
analyzes yield relationships between different
sectors and among securities along the yield
curve. OpCap Advisors seeks to take advantage of
maturities and individual issues that are
inexpensive and have the potential to provide
superior returns. In evaluating high yield debt
securities, OpCap Advisors supplements its
traditional credit analysis with an evaluation of
an issuer's asset values.
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Principal Risks If you invest in the Portfolios that invest in equity
securities, you could lose money or those Portfolios
could underperform other investments if any of the
following happens:
. The stock market goes down
. The Portfolio's investment style (i.e., value or
growth) falls out of favor with the stock
market
. The Portfolio's investment sector (e.g., small
cap, mid cap or foreign securities, which
generally are more volatile than U.S. large cap
securities) declines or becomes less liquid
. For the Equity, Mid Cap, Small Cap, Global Equity,
Managed and Balanced Portfolios, the market
undervalues the stocks held for longer than
expected, or the stocks purchased turn out not to
be undervalued
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. For the Innovation Portfolio, the market overvalues
proposed technological innovations, or such innovations
fail to develop
. The stocks selected for growth potential do not achieve
such growth.
If you invest in the Portfolios that invest in debt
securities, you could lose money or your investment may
underperform other investment if any of the following
happens:
. Interest rates rise and the bond market goes down.
. Issuers of debt instruments cannot meet their
obligations.
. Bond issuers' call bonds selling at a premium to their
call price before the maturity date.
. Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The Portfolios
may have to reinvest these prepayments at lower
rates.
The U.S. Government Income Portfolio principally buys fixed
income securities that are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, so credit
risk should be low.
Bar Chart and
Performance Table The bar charts provide some indication of the risks of
investing in the Portfolios by showing changes in the
performance of each Portfolio's shares from year to year for
the life of each Portfolio and the highest and lowest
quarterly return during the life of each Portfolio.
Performance is not shown on a bar chart for the Blended
Equity, Balanced, Large Cap Growth, Small Cap Growth, Target
and Innovation Portfolios because they do not have a full
calendar year of performance.
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the future. The
Portfolios' performance does not reflect charges and
deductions which are imposed under the variable
contracts.
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Equity Portfolio
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
22.67% (2.22)% 31.22% 17.90% 7.85% 3.81% 38.85% 23.36% 26.63% 11.86%
During the period from the inception of the Equity Portfolio through December
31, 1999, the highest quarterly return was ____% (for the quarter ended
________, _____) and the lowest quarterly return was (_____)% (for the quarter
ended ____________, _____).
[Bar chart for the Mid Cap Portfolio to be added by amendment.]
During the period from the inception of the Mid Cap Portfolio through December
31, 1999, the highest quarterly return was _____% (for the quarter ended
_________, ______) and the lowest quarterly return was (______)% (for the
quarter ended ________________________, ______________.
Small Cap Portfolio
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
18.35% (9.76)% 48.12% 21.49% 19.51% (1.01)% 15.23% 18.72% 22.24% (9.03)%
During the period from the inception of the Small Cap Portfolio through December
31, 1999, the highest quarterly return was _____% (for the quarter ended
_________, ______) and the lowest quarterly return was (_____)% (for the quarter
ended ______________, _______).
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Global Equity
1996 1997 1998
15.02% 14.02% 13.29%
During the period from the inception of the Global Equity Portfolio through
December 31, 1999, the highest quarterly return was _____% (for the quarter
ended __________, ________) and the lowest quarterly return was (_____)% (for
the quarter ended ___________________, __________).
Managed Portfolio
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
32.55% (3.63)% 45.98% 18.65% 10.39% 2.61% 45.55% 22.77% 22.29% 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1999, the highest quarterly return was _____% (for the quarter ended
__________, _______) and the lowest quarterly return was (_____)% (for the
quarter ended __________, _______).
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U.S. Government Income Portfolio
1996 1997 1998
3.02% 7.04% 8.15%
During the period from the inception of the U.S. Government Income Portfolio
through __________, _______, the highest quarterly return was ____% (for the
quarter ended __________, _______) and the lowest quarterly return was (___)%
(for the quarter ended __________, _______).
*On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two investment
funds, the Old Trust and the Fund, at which time the Fund commenced operations.
The total net assets for each of the Equity, Small Cap and Managed Portfolios
immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274 and
$51,345,102, respectively, with respect to the Fund. For the period prior to
September 16, 1994, the performance figures above for each of the Equity, Small
Cap and Managed Portfolios reflect the performance of the corresponding
Portfolios of the Old Trust. The Old Trust commenced operations on August 1,
1988.
The table shows how the average annual returns for one year, five years and for
the life of the Equity and Managed Portfolios compare to that of the Standard &
Poor's Composite Index of 500 Stocks, how the average annual returns for one
year and for the life of the Mid Cap Portfolio compare to those of the Wilshire
750 Mid Cap Index, how the average annual returns for the Small Cap Portfolio
compare to the Russell 2000, how the average annual returns for the Global
Equity Portfolio compare to the MSCI World Index, and how the returns for the
U.S. Government Income Portfolio compare to the Lehman Intermediate Government
Bond Index. The table gives some indication of the risks of the Portfolios by
comparing the performance of each Portfolio with a broad measure of market
performance. The Blended Equity, Balanced, Large Cap Growth, Small Cap Growth,
Target and Innovation do not have track records yet.
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Average Annual Total Returns for the periods ended December 31, 1999
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Past Year Past 5 Years Since Inception
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Equity Portfolio __% __% __%
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Managed Portfolio __% __% __%
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S&P 500 Index __% __% __%
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Small Cap Portfolio __% __% __%
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Russell 2000 __% __% __%
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Mid Cap Portfolio __% N/A __%
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Wilshire 750 Mid Cap Index N/A N/A __%
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Global Equity Portfolio __% N/A __%
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MSCI World Index __% N/A __%
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U.S. Government Income Portfolio __% N/A __%
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Lehman Intermediate Government
Bond Index __% N/A __%
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U.S. Government Income Portfolio Yield for the 30-day period ended December 31, 1999
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____%
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RELATED PERFORMANCE
Because the Large Cap Growth Portfolio and the Small Cap Growth Portfolio are
new Portfolios, neither Portfolio has performance history. The performance set
forth below does not represent the performance of any Portfolio.
Portfolio Manager for the Large Cap Growth Portfolio
Prior to becoming the manager for the Large Cap Growth Portfolio, Kenneth W.
Corba was the portfolio manager of Eagle Asset Management institutional separate
accounts. From _____ to _______, Mr. Corba managed these institutional separate
accounts. The performance shown below represents a composite of the performance
of size-weighted similarly managed, unconstrained separate accounts (the
"Composite Account"). The accounts were not available to the general public and
were not subject to the same concerns that a manager of a mutual fund may have
to address. However, the management of the Composite Account and the Large Cap
Growth Portfolio is expected to be similar in all material respects. At
__________ (insert last date he managed), the Composite Account had $_______
billion in net assets. As manager, Mr. Corba had full discretionary authority
over the selection of investments and was primarily responsible for the day-to-
day management of the separate accounts. Average annual total returns for the
Composite Account compared with the performance of the S&P 500 Index were:
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Calendar year periods Composite Accounts(/1/,/2/) S&P 500 Index/3/
ending ______ , 1999
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One Year
Three Years
Inception through[ ]/4/
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/1/ Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of all actual fees
and expenses incurred by the Composite Account.
/2/ The management fee of the Composite Account was ___ for the
period _______ to ________.
/3/ The Standard & Poor's 500 Composite Stock Total Return Index is an unmanaged
index of common stocks that is considered to be generally representative of
the United States stock market. The Index is adjusted to reflect
reinvestment of dividends.
/4/ Performance since-inception reflects performance of the Composite Account
during the entire period Mr. Corba managed this fund.
Historical performance is not a guarantee of future performance. Although the
Large Cap Growth Portfolio and the Composite Accounts have substantially similar
objectives, policies, and strategies, the Composite Account is a composite of
institutional separate accounts and its historical performance is not indicative
of the future performance of the Large Cap Growth Portfolio.
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Portfolio Manager for the Small Cap Growth Portfolio
Prior to becoming the manager for the Small Cap Growth Portfolio, Michael F.
Gaffney was the portfolio manager of the Alliance Capital Management
institutional separate accounts. From ______ to ______, Mr. Gaffney managed
institutional__number of separate accounts. The performance shown below
represents a composite of the performance of size-weighted, similarly managed,
unconstrained separate accounts (the "Composite Account"). The accounts were not
available to the general public and were not subject to the same concerns that a
manager of a mutual fund may have to address. However, the management of the
Composite Account and the Small Cap Growth Portfolio is expected to be similar
in all material respects. At ______(insert last date he managed), the Composite
Account had $_____ billion in net assets. As manager, Mr. Gaffney had full
discretionary authority over the selection of investments and was primarily
responsible for the day-to-day management of the separate accounts. Average
annual total returns for the Composite Account compared with the performance of
the Russell 2000 Index were:
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<CAPTION>
Calendar year periods ending Composite Accounts(/5/, /6/) Russell 2000/7/
_______, 1999
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One Year
Five Years
Ten Years
</TABLE>
__________________________________
/5/ Average annual total return reflects changes in share prices and
reinvesment of dividends and distributions and is net of all actual fees and
expenses incurred by the Composite Account.
/6/ The management fee of the Composite Account was __for the period
________to_________.
/7/ The Russell 2000 Index is an unmanaged index of common stocks that is
considered generally representative of the small cap U.S. stocks. The Index
is adjusted to reflect reinvestment of dividends.
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Historical performance is not a guarantee of future performance. Although the
Small Cap Growth Portfolio and the Composite Account have substantially similar
objectives, policies, and strategies, the Composite Account is a composite of
institutional separate accounts and its historical performance is not indicative
of the future performance of the Small Cap Growth Portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Equity Portfolio
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Q What is the Portfolio's investment objective?
A Long term capital appreciation through investment in a diversified
portfolio of equity securities selected on the basis of a value approach to
investing.
Q What is the Portfolio's investment program?
A The Equity Portfolio invests primarily in equity securities of companies
that OpCap Advisors believes are undervalued in the marketplace. Under
normal conditions, the Equity Portfolio will invest at least 65% of its
total assets in equity securities listed on the New York Stock Exchange.
The Equity Portfolio also may purchase securities listed on other U.S. or
foreign securities exchanges or traded in the U.S. or foreign over the
counter markets.
The Equity Portfolio is managed to follow a composite portfolio constructed
by a group of senior portfolio managers at OpCap Advisors.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long
term growth of capital. Equity investors should have a long term investment
horizon and should be prepared for the ups and downs of the stock markets.
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Blended Equity Portfolio
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Q What is the Portfolio's investment objective?
A Long term capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests generally in equity securities of companies with
market capitalization of a least $5 billion at the time of purchase that
PIMCO Equity Advisors believes will experience relatively rapid earnings
growth and in equity securities of companies with market capitalizations of
at least $2 billion that OpCap Advisors believes are undervalued relative
to their industry group. The majority of the stocks purchased by the
Portfolio will be listed on a domestic stock exchange or traded in the U.S.
over the counter market. The Portfolio may purchase foreign securities that
are listed on a U.S. or foreign exchange or traded in the U.S. or foreign
over the counter market, purchase and sell foreign currencies and use
derivatives for risk management purposes or as part of its investment
strategy. In response to unfavorable market and other conditions, the
Portfolio may invest temporarily in high-quality fixed income
securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long
term growth of capital. Opportunities for long term growth of capital arise
from companies that are undervalued relative to their industry group or
show strong potential for growth or experience better than anticipated
earnings growth.
Large Cap Growth Portfolio
- --------------------------
Q What is the Portfolio's investment objective?
A Long term capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with
market capitalizations of at least $5 billion at the time of purchase which
OPCap Advisors and PIMCO Equity Advisors believes will experience
relatively rapid earnings growth. The majority of the stocks purchased by
the Portfolio will be listed on a domestic stock exchange or traded in
15
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the U.S. over the counter market. The Portfolio may purchase foreign
securities that are listed on a U.S. or foreign exchange or traded in the
U.S. or foreign over the counter market, purchase and sell foreign
currencies and use derivatives for risk management purposes or as part of
its investment strategy. In response to unfavorable market and other
conditions, the Portfolio may invest temporarily in high-quality fixed
income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long
term growth of capital. The prices of securities of large cap companies may
be less volatile than those of less highly-capitalized companies.
Small Cap Growth Portfolio
- --------------------------
Q What is the Portfolio's investment objective?
A Capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with
market capitalizations of under $2 billion at the time of purchase which
PIMCO Equity Advisors believes will experience relatively rapid earnings
growth. The majority of the stocks purchased by the Portfolio will be
listed on a domestic stock exchange or traded in the U.S. over the counter
market. The Portfolio may purchase foreign securities that are listed on a
U.S. or foreign exchange or traded in the U.S. or foreign over the counter
market, purchase and sell foreign currencies and use derivatives for risk
management purposes or as part of its investment strategy. In response to
unfavorable market and other conditions, the Portfolio may invest
temporarily in high-quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long
term growth of capital. Opportunities for appreciation for small cap
companies could result from product expansion or product improvement,
industry transition, new management or the sale of the company. Small cap
companies are followed by fewer analysts than are large and mid cap
companies. So as additional analysts follow a small cap stock, investor
demand for the stock may increase.
Target Portfolio
- ----------------
Q What is the Portfolio's investment objective?
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A Capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with
market capitalizations between $1 billion and $10 billion at the time of
purchase which PIMCO Equity Advisors believes will experience relatively
rapid earnings growth. The majority of the stocks purchased by the
Portfolio will be listed on a domestic stock exchange or traded in the U.S.
over the counter market. The Portfolio may purchase foreign securities that
are listed on a U.S. or foreign exchange or traded in the U.S. or foreign
over the counter market, purchase and sell foreign currencies and use
derivatives for risk management purposes or as part of its investment
strategy. In response to unfavorable market and other conditions, the
Portfolio may invest temporarily in high-quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital. To the
extent the Portfolio invests in mid cap companies it may take advantage of
opportunities for value creation resulting from regional or product line
expansion or the sale of such companies. Investment in large cap companies
may mitigate the volatility of the Portfolio.
Mid Cap Portfolio
- -----------------
Q What is the Portfolio's investment objective?
A Long term capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with
market capitalizations between $500 million and $5 billion at the time of
purchase which OpCap Advisors believes are undervalued. The majority of the
stocks purchased by the Portfolio will be listed on a domestic stock
exchange or traded in the U.S. over the counter market. The Portfolio may
purchase foreign securities that are listed on a U.S. or foreign exchange
or traded in the U.S. or foreign over the counter markets. The Portfolio
also may purchase securities in initial public offerings or shortly after
those offerings have been completed.
17
<PAGE>
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital. Mid
cap companies generally are studied by fewer analysts than are large cap
companies. Institutional investors may not want to hold large positions in
mid cap companies. Opportunities for capital appreciation for mid cap
companies could result from regional or product line expansion or sale of
the company.
Small Cap Portfolio
- -------------------
Q What is the Portfolio's investment objective?
A Capital appreciation through a diversified portfolio consisting primarily
of securities of companies with market capitalizations of under $1 billion
at time of purchase.
Q What is the Portfolio's investment program?
A The Small Cap Portfolio invests primarily in equity securities of companies
with market capitalizations under $1 billion at the time of purchase that
OpCap Advisors believes are undervalued in the marketplace. The Small Cap
Portfolio may purchase securities listed on U.S. or foreign securities
exchanges or traded in the U.S. or foreign over the counter markets. The
Portfolio also may purchase securities in initial public offerings or
shortly after those offerings have been completed.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital.
Opportunities for value creation for small cap companies could result from
product expansion or product
18
<PAGE>
improvement, industry transition, new management or sale of the company.
Small cap companies are followed by fewer analysts than are large and mid
cap companies. So as additional analysts follow a small cap stock, investor
demand for the stock may increase.
Innovation Portfolio
- --------------------
Q What is the Portfolio's investment objective?
A Capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies which use
innovative technologies to gain a strategic competitive advantage in their
industry, as well as companies that provide and service those technologies.
Although the Portfolio emphasizes technology companies, it is not required
to invest exclusively in companies in a particular business sector. The
majority of the stocks purchased by the Portfolio will be listed on a
domestic stock exchange or traded in the U.S. over the counter market. The
Portfolio may purchase foreign securities that are listed on a U.S. or
foreign exchange or traded in the U.S. or foreign over the counter market,
purchase and sell foreign currencies and use derivatives for risk
management purposes or as part of its investment strategy. In response to
unfavorable market and other conditions, the Portfolio may invest
temporarily in high-quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital.
Opportunities for technology companies may result from the competitive
strategic advantages associated with the use and service of innovative
technologies as well as from the successful development and sale of those
technologies.
Global Equity Portfolio
- -----------------------
Q What is the Portfolio's investment objective?
A Long term capital appreciation through pursuit of a global investment
strategy primarily involving equity securities.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies located
throughout the world. The Portfolio may invest up to 35% of its total
assets in fixed income securities which may be lower than investment
grade.
19
<PAGE>
Q What are the potential rewards of investing in the Portfolio?
A Foreign securities provide additional opportunities and diversification.
U.S. stocks represent less than half of the world's stock market
capitalization.
Managed Portfolio
- -----------------
Q What is the Portfolio's investment objective?
A Growth of capital over time through investment in a portfolio consisting of
common stocks, bonds and cash equivalents, the percentages of which will
vary based on OpCap Advisors' and PIMCO's assessments of the relative
outlook for such investments.
Q What is the Portfolio's investment program?
A The Managed Portfolio invests in common stocks, bonds and cash equivalents
in varying percentages based on OpCap Advisors' and PIMCO's view of
relative values. The Managed Portfolio may purchase securities listed on
U.S. or foreign securities exchanges or traded in the U.S. or foreign over
the counter markets. The Portfolio also may purchase investment grade U.S.
government and corporate bonds and high quality money market securities.
The Portfolio can invest up to 100% of its assets in debt securities but
will only do so if equity securities are not an attractive investment.
Q What are the potential rewards of investing in the Portfolio?
20
<PAGE>
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital.
Balanced Portfolio
- ------------------
Q What is the Portfolio's investment objective?
A Growth of capital and investment income.
Q What is the Portfolio's investment program?
A The Balanced Portfolio invests in equity securities (with an emphasis on
dividend-paying stocks) and debt securities that OpCap Advisors believes
are undervalued. Generally, the Portfolio will invest at least 25% of its
total assets in equity securities and at least 25% of its total assets in
debt securities. The Portfolio seeks debt securities that offer investment
income and the potential for capital appreciation if interest rates decline
or the issuer's credit improves. OpCap Advisors seek to find convertible
securities that have the potential for investment income prior to
conversion and capital growth. Convertible debt securities may be
classified as equity securities or as debt securities depending on the
value of the conversion feature as compared to the debt feature. The
Balanced Portfolio may purchase securities listed on U.S. or foreign
securities exchanges or traded in U.S. or foreign over the counter markets.
The Portfolio may invest up to 25% of its total assets in debt securities
rated below investment grade.
Q What are the potential rewards of investing in the Portfolio?
21
<PAGE>
A The Portfolio's mix of equity securities, convertible securities and debt
securities may result in the Portfolio's being less volatile than the
market.
U.S. Government Income Portfolio
- --------------------------------
Q What is the Portfolio's investment objective?
A High level of current income together with protection of capital by
investing exclusively in debt obligations, including mortgage-backed
securities issued or guaranteed by the United States government, its
agencies or instrumentalities.
Q What is the Portfolio's investment program?
A The U.S. Government Income Portfolio invests in debt obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities. These securities are referred to as "U.S. Government
Securities." The Portfolio also may purchase mortgage-backed securities to
effectuate this program.
OpCap Advisors observes current and historical yield relationships between
maturities and sectors to seek the best relative values. The Portfolio
generally maintains an average maturity between five and ten years. OpCap
Advisors does not attempt to forecast interest rates in managing the
Portfolio.
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio consists of the highest quality debt instruments. Since the
average maturity of the Portfolio's investments are between five and ten
years, the Portfolio should be less volatile than a longer term bond fund.
RISKS
Q What are the risks of investing in the Portfolios?
A The Equity, Blended Equity, Large Cap Growth, Small Cap Growth, Target, Mid
Cap, Small Cap, Innovation, Global Equity, Managed and Balanced Portfolios
invest principally in equity securities which may be affected by the
following:
Stock Market Volatility - The stock market in general may fluctuate in
response to political, market and economic developments and you can lose
money on your investments. Equity investors should have a long-term
investment horizon and should be prepared for the ups and downs of the
stock market.
22
<PAGE>
Stock Picking - The Advisors may select stocks that have prices that turn
out not to be undervalued or do not achieve expectations for growth in
income or revenues.
Issuer Changes - Changes in the financial condition of an issuer or changes
in economic conditions that affect a particular type of issuer can affect
the value or credit quality of an issuer's securities.
Small Cap and Mid Cap Volatility - Mid cap stocks are more volatile and
have less trading volume than large cap stocks. Small cap stocks are more
volatile and have less trading volume than both large cap and mid cap
stocks.
Sector Risk - The Advisors are bottom up investment managers. That means
that they select securities for a Portfolio based on the investment merits
of a particular issue rather than the business sector.
Investment Styles - Value or growth stocks may be out of favor for a period
of time. The Advisors are long-term investors and their investment style
can produce poor returns for a period of time.
Asset Allocation Risk - The Managed and Balanced Portfolios invest in a mix
of equity and fixed income securities. The portfolio managers of those
Portfolios can make the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios,
the Advisors use approximately the same standards that they set for U.S.
issuers. Foreign securities, foreign currencies and securities issued by
U.S. entities with substantial foreign operations may have additional risks
than U.S. securities. This risk is greater for the Global Equity Portfolio
which invests on a worldwide basis.
Political Risk - Foreign governments can take over the assets or operations
of a company or may impose taxes or limits on the removal of the
Portfolio's assets from that country.
. Currency risk - The value of securities held in foreign currencies
will be affected by changes in the value of that currency.
. Liquidity - Some foreign markets are less liquid and more volatile
than the U.S. stock market.
. Limited information - There may be less public information about
foreign issuers than there is about U.S. issuers.
. Settlement and clearance - Some foreign markets experience delays in
settlement. These delays could cause the Portfolio to miss investment
opportunities or to be unable to sell a security.
. Euro - The effect of the Euro on international markets has not yet
been determined.
. Emerging Markets - There are greater risks of unstable governments and
economics
23
<PAGE>
and restriction on foreign ownership in these countries. The
Portfolios presently intend to limit investment in emerging markets to
no more than 5% of their total assets.
To the extent that the Portfolios invest in debt securities, the Portfolios
are exposed to these risks:
. Interest rate risk - The risk that changes in interest rates will
affect the value of fixed income securities in the Portfolio.
. Prepayment risk - The risk that the holder of a mortgage underlying a
mortgage backed security will prepay principal.
. Credit risk - The risk that an issuer of a fixed income security will
be unable to pay principal and interest payments when they are due.
To the extent that the Global Equity Portfolio or the Balanced Portfolio
invests in lower grade debt securities, you should know that lower grade debt
may have the following additional risks:
. more volatility
. less liquidity
. greater risk of issuer default or insolvency.
INVESTMENT POLICIES
Q Can a Portfolio change its investment objective and investment policies?
A Fundamental policies of a Portfolio cannot be changed without the approval
of a majority of the outstanding voting shares of the Portfolio. A
Portfolio's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. Investment policies are not fundamental and can be
changed by the Fund's Board of Trustees.
Q Can the Portfolios use derivative instruments?
A Yes. The Equity, Blended Equity, Large Cap Growth, Small Cap Growth,
Target, Mid Cap, Small Cap, Innovation, Global Equity, Managed and Balanced
Portfolios may use the following derivative instruments:
. futures contracts
. options on futures contracts
. forward foreign currency contracts
. covered calls written on individual securities
. uncovered calls and puts
. options on stock indices.
24
<PAGE>
The Equity, Mid Cap, Small Cap, Global Equity and Balanced Portfolios do
not expect to use derivative instruments significantly, if at all. The
Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios will sometimes use derivative instruments as part of a strategy
designed to reduce exposure to other risks, such as interest risk or
currency risk, and may also use derivative instruments to meet their
investment objectives.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if:
. Its investment adviser uses a derivative instrument at the wrong time.
. The prices of a Portfolio's futures or options positions are not
correlated with its other investments.
. A Portfolio cannot close out a position because of an illiquid market.
Q Do the Portfolios expect to engage in short-term trading?
A The Portfolios do not expect to engage in frequent short-term trading. The
Financial Highlights table in this prospectus shows the turnover rates
during prior fiscal years for the Portfolios that were active during this
period.
Q Can the Portfolios vary from their investment goals?
A When a Portfolio's investment adviser or subadviser thinks market or
economic conditions are adverse, it may invest up to 100% of its assets in
defensive investments such as U.S. Government securities and money market
instruments. To the extent that a Portfolio takes a defensive position, it
will not be pursuing its investment objective.
FUND MANAGEMENT
OpCap Advisors
- --------------
The Board of Trustees of the Fund has hired OpCap Advisors to serve as
manager of the Fund.
OpCap Advisors is a subsidiary of Oppenheimer Capital, an investment
advisory firm with approximately $_____ billion of assets under management as of
______________, 1999. They are indirect wholly-owned subsidiaries of PIMCO
Advisors L.P. The mailing address is 1345 Avenue of the Americas, New York, New
York 10105.
25
<PAGE>
OpCap Advisors has been in business as an investment adviser since 1987 and
Oppenheimer Capital has been in business as an investment adviser since 1969.
OpCap Advisors manages the investments of certain Portfolios (and places
brokerage orders) and conducts the business affairs of the Fund. Employees of
Oppenheimer Capital as well as employees of OpCap Advisors perform these
services.
Each Portfolio pays OpCap Advisors fees in return for providing or
arranging for the provision of investment advisory services. In the case of the
Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios for which OpCap Advisors has retained PIMCO Equity Advisors as
subadvisor, OpCap Advisors (and not the Fund) pays a portion of the advisory
fees its receives to PIMCO Equity Advisors in return for its services. OpCap
also pays a portion of its subadvisory fees to PIMCO in return for the advisory
services PIMCO performs for the Managed Portfolio. The Portfolios of the Fund
listed below paid OpCap Advisors the following fees as a percentage of average
daily net assets during the fiscal year ended December 31, 1999:
Equity Portfolio .__%
Mid Cap Portfolio .__%
Small Cap Portfolio .__%
Global Equity Portfolio .__%
Managed Portfolio* .__%
U.S. Government Income Portfolio .__%
*OpCap paid PIMCO a fee equal to ______% of the average daily net assets of
the Managed Portfolio during the fiscal year ended December 31, 1999 for the
advisory services PIMCO performed for the Portfolio.
OpCap Advisors waived all of its fees from the Mid Cap Portfolio for the
period (commencement of operations) to December 31, 1999 and waived a portion of
its fees from the U.S. Government Income Portfolio for the fiscal year ended
December 31, 1999.
PIMCO Equity Advisors
- ---------------------
PIMCO Equity Advisors acts as subadviser to the Large Cap Growth, Small Cap
Growth, Target and Innovation Portfolios. OpCap Advisors has also retained the
PIMCO Equity Advisers to manage a portion of the investments of the Blended
Equity Portfolio. PIMCO Equity Advisors is a division of PIMCO Advisors, which
has its principal offices at 800 Newport Center Drive, Newport Beach, California
92660. Organized in 1987, PIMCO Advisors provides investment management and
advisory services to private accounts of institutional and individual clients
and to mutual funds. As of March 31, 1999 PIMCO Advisors and its subsidiary
partnership had more than $_______ billion in assets under management.
26
<PAGE>
Portfolio Managers
- ------------------
Louis Goldstein has been the portfolio manager
[PHOTO OF LOUIS of the Mid Cap Portfolio since its inception.
GOLDSTEIN APPEARS HERE] Louis Goldstein is a Senior Vice President of
Oppenheimer Capital. He joined Oppenheimer
Capital in 1991. He earned a BS Summa Cum Laude
and a MBA in Finance with honors from the
Wharton School of Business.
Timothy McCormack has been a portfolio manager
[PHOTO OF TIMOTHY of the Small Cap Portfolio since May 1996. Mr.
McCORMACK APPEARS HERE] McCormack, Senior Vice President of Oppenheimer
Capital, joined Oppenheimer Capital in 1994.
Prior to this time, he worked as a security
analyst with U.S. Trust Company from March 1993
to July 1994 and as a security analyst with
Gabelli and Company. He has an MBA from the
Wharton School.
Mr. Degenhart, who has been a portfolio manager
[PHOTO OF MR. of the Small Cap Portfolio since February 1999,
DEGENHART APPEARS HERE] joined Oppenheimer Capital in January 1999 as a
Vice President with responsibilities including
research, analysis and investment management.
He acts as a portfolio manager for several
small capitalization funds. Prior to joining
Oppenheimer Capital, he was Director of
Research and Associate Portfolio Manager at
Palisade Capital Management. From 1990 to 1993,
he was a Generalist for Cazenove & Co.
Previously Mr. Degenhart was a Special
Situations Analyst at Argus Research Corp for
over three years. He has a BS degree in
marketing from the University of Scranton.
27
<PAGE>
James Sheldon became portfolio manager of the
[PHOTO OF JAMES foreign portion of the Global Equity Portfolio
SHELDON APPEARS HERE] on September 9, 1998. Richard Glasebrook,
Managing Director of Oppenheimer Capital, has
managed the domestic portion of the Global
Equity Portfolio since its inception.
Mr. Sheldon joined Oppenheimer Capital in
February 1998 as a Senior Vice President.
Before joining Oppenheimer Capital, he was
General Partner at Omega Advisors, a hedge
fund, from September 1996 to February 1998 and
Senior Vice President and International
portfolio manager of Lazard Freres Asset
Management from December 1992 to August 1996.
Mr. Glasebrook joined Oppenheimer Capital in
[PHOTO OF RICHARD 1991. He has a BA from Kenyan College and a MBA
GLASEBROOK APPEARS HERE] from the Harvard School of Business
Administration. Richard Glasebrook has been the
portfolio manager of the Managed Portfolio
since its inception.
Colin Glinsman, Chief Investment Officer and
[PHOTO OF COLIN Managing Director of Oppenheimer Capital, is
GLINSMAN APPEARS HERE] the portfolio manager of the Balanced
Portfolio. He joined Oppenheimer Capital in
1989 as a securities analyst. He has a BA from
Yale University and a MS from New York
University.
Vikki Hanges, Senior Vice President of
[PHOTO OF VIKKI Oppenheimer Capital, has been the portfolio
HANGES APPEARS HERE] manager since its inception. She joined
Oppenheimer Capital in 1982. Ms. Hanges has a
BS from Cornell University.
Kenneth W. Corba has been the portfolio manager
[PHOTO OF KENNETH of the Large Cap Growth Portfolio since its
W. CORBA APPEARS HERE] inception. Mr. Corba, Chief Investment Officer,
Managing Director of PIMCO Equity Advisors,
joined PIMCO Equity Advisors in _______. Prior
to this time, he was the Chief Investment
Officer for Eagle Asset Management from
_________ to _________ and Director of the
Capital Management Group at Stein Roe & Farnham
of_________ to _________. He has a BA and MBA
from the University of Michigan.
28
<PAGE>
Michael F. Gaffney, a Senior Portfolio Manager
[PHOTO OF MICHAEL F. of PIMCO Equity Advisors, has been the
GAFFNEY APPEARS HERE] portfolio manager of the Small Cap Growth
Portfolio since its inception. Mr. Gaffney
joined PIMCO Equity Advisors in ________. Prior
to this time, he was the
________________________ for Alliance Capital
Management from _____________ to ___________.
He has a BS Magna Cum Laude from St. John's
University and a MBA from New York University.
Dennis McKechnie, a Certified Financial
[PHOTO OF DENNIS Analyst, is a Senior Portfolio Manager of PIMCO
McKECHNIE APPEARS HERE] Equity Advisors. Mr. McKechnie has been the
portfolio manager of the Innovation Portfolio
since its inception and joined PIMCO Equity
Advisors in __________. He has eight years of
investment management experience as the
________________ for Columbus Circle Investors
from ________ to ________. Before that he
worked as an engineer with Motorola Inc. From
__________ to ___________ and with NCR
Corporation from __________ to ___________. He
has a BS in Electrical Engineering from Purdue
University and a MBA from Columbus Business
School.
Jeffrey D. Parker, Portfolio Manager of PIMCO
[PHOTO OF JEFFREY Equity Advisors, has been the portfolio manager
D. PARKER APPEARS HERE] of the Target Portfolio since its inception.
Mr. Parker joined PIMCO Equity Advisors in
________. Prior to this time, he was an
Assistant Portfolio Manager for Eagle Asset
Management from _________ to _________ and a
Senior Consultant specializing in health care
and technology for Andersen Consulting from
_________ to __________. He has a BBA from the
University of Miami and a MBA from Vanderbilt
University.
SHARE PRICE
The Fund calculates each Portfolio's share price, called its net asset
value, on each business day that the New York Stock Exchange is open after the
close of regular trading (generally 4:00 p.m. Eastern Standard Time). Net asset
value per share is computed by adding up the total value of a Portfolio's
investments and other assets, subtracting its liabilities and then dividing by
the number of shares outstanding.
Total Portfolio Assets - Liabilities
Net Asset Value = -----------------------------------------
Number of Portfolio Shares Outstanding
29
<PAGE>
The Fund uses the market prices of securities to value a Portfolio's
investments unless securities do not have market quotations or are short-term
debt securities. When the Fund uses fair value to price a security, the Fund
reviews the pricing method with the Fund's Board. The Fund prices short-term
investments that mature in less than 60 days using amortized cost or amortized
value. Foreign securities trade on days when the Portfolios do not price their
shares so the net asset value of a Portfolio's shares may change on days when
shareholders will not be able to buy or sell shares of the Portfolio. If an
event occurs after the close of the New York Stock Exchange that the Fund
believes changes the value of a security, then the Fund will value the security
at fair value.
DISTRIBUTIONS AND TAXES
This discussion is about distributions to the Portfolio's shareholders,
which are variable accounts of insurance companies and qualified pension and
retirement plans. You should read the prospectus for the variable account for
information about distributions and federal tax treatment for contract owners of
variable products.
Each Portfolio pays dividends from its net investment income and
distributes any net capital gains that it has realized at least once a year. The
U.S. Government Income Portfolio pays dividends from its net investment income
once a month.
YEAR 2000 ISSUES
Many of the services provided to the Fund depend on the smooth functioning
of computer systems. Many systems in use today cannot distinguish between the
year 1900 and the year 2000 unless their hardware and software have been
properly remediated. Should any of the computer systems of the Fund's material
service providers fail to process information properly, this could have an
adverse impact on the Fund's operations and services provided to shareholders.
OpCap surveyed the Fund's material service providers and believes that, on the
basis of the information supplied, that the service providers will not be
materially adversely affected by the so-called "year 2000 problem." However,
there can be no assurance that the problem has been corrected in all respects
and that the Fund's operations and services provided to shareholders will not be
adversely affected, nor can there be any assurance that the year 2000 problem
will not have an adverse effect on the entities whose securities are held by the
Portfolios or on domestic or global equity markets or economies, generally. The
Portfolios will attempt to
30
<PAGE>
maintain sufficient liquidity to satisfy actual or anticipated redemption
activity.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolios' financial performance. Certain information reflects financial
results for a single Portfolio share. The total returns in the table represent
the rate that an investor would have earned (or lost) on an investment in a
Portfolio (assuming reinvestment of all dividends and distributions). The
information in the financial highlights table for the fiscal periods ended on or
before ________________, 19___ has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the corresponding Portfolios'
financial statements, is included in the Fund's SAI, which is available upon
request. The information in the financial highlights table for the interim
period commencing on ______________, 1999 and ending on __________ along with
the corresponding Portfolios' financial statements are unaudited. The interim
financial statements are included in the Fund's SAI.
31
<PAGE>
[To be updated.]
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
September 16, 1994 (1) to
1998 1997 1996 1995 December 31, 1994
-------- -------- -------- --------- -------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 36.52 $ 30.07 $ 25.05 $ 18.12 $ 18.57
-------- -------- -------- --------- _________________________
Income (loss) from investment
operations:
Net investment income 0.39 0.39 0.21 0.31 0.09
Net realized and unrealized gain
(loss) on investments 3.84 7.34 5.52 6.71 (0.54)
-------- -------- -------- --------- ------------------------
Total income (loss) from investment
operations 4.23 7.73 5.73 7.02 (0.45)
-------- -------- -------- --------- ------------------------
Dividends and distributions to
shareholders:
From net investment income (0.39) (0.28) (0.24) (0.09) -
From net realized gains (1.66) (1.00) (0.47) - -
-------- -------- -------- --------- ------------------------
Total dividends and distributions to
shareholders (2.05) (1.28) (0.71) (0.09) -
-------- -------- -------- --------- ------------------------
Net asset value, end of period $ 38.70 $ 36.52 $ 30.07 $ 25.05 $ 18.12
======== ======== ======== ========= ========================
Total Return (2) 11.90% 26.60% 23.40% 38.90% (2.4)%
======== ======== ======== ========= ========================
Net assets, end of period (000's) $48,711 $28,820 $19,843 $ 9,036 $ 4,281
======== ======== ======== ========= ========================
Ratio of net operating expenses to
average net assets (4) 0.94% 0.99% 0.93%/(5)/ 0.72%/(5)/ 0.72%/(3,5)/
======== ======== ======== ========= ========================
Ratio of net investment income to
average net assets 1.36% 1.25% 1.29%/(5)/ 1.74%/(5)/ 1.80%/(3,5)/
======== ======== ======== ========= ========================
Portfolio Turnover 29% 32% 36% 31% 6%
-------- -------- --------
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized.
(4) For fiscal periods ending after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all 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.
32
<PAGE>
[To be updated.]
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
February 9, 1998 (1)
to
December 31, 1998
--------------------
<S> <C>
Net asset value, beginning of period $ 10.00
--------------------
Income (loss) from investment operations:
Net investment income 0.05
Net realized and unrealized loss on
investments (0.21)
--------------------
Total loss from investment operations (0.16)
--------------------
Dividends to shareholders from net
investment income (0.05)
--------------------
Total dividends to shareholders (0.05)
--------------------
Net asset value, end of period $ 9.79
====================
Total Return (2) (1.6)%
====================
Net assets, end of period (000's) $ 1,885
====================
Ratio of net operating expenses to
average net assets (3,4,5) 1.05%
====================
Ratio of net investment income to
average net assets (3,4) 0.78%
====================
Portfolio Turnover 38%
====================
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for
a period of less than one year is not annualized.
(3) Annualized
(4) Inclusive of expenses offset by earnings credits from custodian
bank.
(5) During the period noted above, the Adviser waived its fee and assumed a
portion of the Portfolio's operating expenses. If such waivers and
assumptions had not been in effect, the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets would have been 4.28% and (2.46)% (annualized), respectively,
for the period February 9, 1998 (commencement of operations) to December
31, 1998.
33
<PAGE>
[To be updated.]
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
September 16, 1994 (1)
Year ended December 31 December 31, 1994
------------------------------------------------------- ----------------------
1998 1997 1996 1995
-------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.37 $ 22.61 $ 19.91 $ 17.38 $ 17.49
-------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.14 0.08 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments (2.38) 4.73 3.45 2.37 (0.17)
-------- --------- --------- --------- ---------
Total income (loss) from investment
operations (2.24) 4.81 3.59 2.63 (0.11)
-------- --------- --------- --------- ---------
Dividends and distributions to
shareholders:
From net investment income (0.09) (0.13) (0.25) (0.05) ---
From net realized gains (0.94) (0.92) (0.64) (0.05) ---
-------- --------- --------- --------- ---------
Total dividends and distributions to (1.03) (1.05) (0.89) (0.10) ---
shareholders -------- --------- --------- --------- ---------
Net asset value, end of period $ 23.10 $ 26.37 $ 22.61 $ 19.91 $ 17.38
======== ========= ========= ========= =========
Total Return (2) (9.0)% 22.2% 18.7% 15.2% (0.6)%
======== ========= ========= ========= ==========
Net assets, end of period (000's) $155,506 $ 110,565 $ 34,257 $ 16,004 $ 9,210
-------- --------- --------- --------- ---------
Ratio of net operating expenses
to average net assets (4) 0.88% 0.97% 0.93% /(5)/ 0.74% /(5)/ 0.74% /3,5)/
-------- --------- --------- --------- ---------
Ratio of net investment income
to average net assets 0.72% 0.64% 1.03% /(5)/ 1.75% /(5)/ 1.22% /(3,5)/
-------- --------- --------- --------- ---------
Portfolio Turnover 51% 68% 50% 69% 32%
-------- ---------- --------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized
(4) For fiscal periods ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank.
(5) 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
operations 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.
34
<PAGE>
[To be updated.]
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
March 1, 1995 /(1)/
Year ended December 31 to December 31, 1995
----------------------------------------- --------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.32 $ 13.23 $ 11.61 $ 10.00
------- --------- --------- -----------
Income from investment operations:
Net investment income 0.12 0.06 0.04 0.05
Net realized and unrealized gain
on investments 1.78 1.79 1.70 1.83
------- --------- --------- -----------
Total income from investment operations 1.90 1.85 1.74 1.88
------- --------- --------- -----------
Dividends and distributions to
shareholders:
From net investment income (0.18) (0.04) (0.05) (0.03)
-----------
In excess of net investment income -- (0.03) - -
From net realized gains (0.61) (0.69) (0.07) (0.24)
------- --------- --------- -----------
Total dividends and distributions to (0.79) (0.76) (0.12) (0.27)
shareholders ------- --------- --------- -----------
Net asset value, end of period $ 15.43 $ 14.32 $ 13.23 $ 11.61
======= ========= ========= ===========
Total Return (2) 13.3% 14.0% 15.0% 18.9%
======= ========= ========= ===========
Net assets, end of period (000's) $34,777 $ 25,874 $ 16,972 $ 2,891
------- --------- --------- -----------
Ratio of net operating expenses
to average net assets (4) 1.13% 1.19%/(5)/ 1.42%/(5)/ 1.25%/(3,5)/
------- --------- --------- -----------
Ratio of net investment income
to average net assets 0.79% 0.45%/(5)/ 0.81%/(5)/ 1.02%/(3,5)/
------- --------- --------- -----------
Portfolio Turnover 55% 53% 40% 67%
------- --------- --------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized
(4) Inclusive of expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio 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
(loss) to average net assets would have been 1.20% and 0.44%, respectively,
for the year ended December 31, 1997, 1.83 and 0.22%, respectively, for the
year ended December 31, 1996 and 3.94% and (1.67)% (annualized),
respectively, for the period March 1, 1995 (commencement of operations) to
December 31, 1995.
35
<PAGE>
[To be updated.]
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
September 16, 1994 /(1)/
Year ended December 31 to December 31, 1994
---------------------- ------------------------
1998 1997 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- -------- -----------
Income (loss) from investment operations:
Net investment income 0.60 0.34 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments 2.40 7.45 6.31 9.02 (1.11)
-------- -------- -------- -------- -----------
Total income (loss) from investment
operations (3.00) 7.79 6.74 9.44 (0.97)
-------- -------- -------- -------- -----------
Dividends and distributions to shareholders:
From net investment income (0.33) (0.40) (0.41) (0.13) --
From net realized gains (1.31) (1.22) (0.26) -- --
-------- -------- -------- -------- -----------
Total dividends and distributions to
shareholders (1.64) (1.62) (0.67) (0.13) --
-------- -------- -------- -------- -----------
Net asset value, end of period $ 43.74 $ 42.38 $ 36.21 $ 30.14 $ 20.83
======== ======== ======== ======== ===========
Total Return/(2)/ 7.1% 22.3% 22.8% 45.6% (4.4)%
======== ======== ======== ======== ===========
Net assets, end of period (000's) $777,087 $466,791 $180,728 $ 99,188 $ 54,943
-------- -------- -------- -------- -----------
Ratio of net operating expenses
to average net assets/(4)/ 0.82% 0.87% 0.84%/(5)/ 0.66%/(5)/ 0.66%/(3,5)/
-------- -------- -------- -------- -----------
Ratio of net investment income
to average net assets 1.74% 1.42% 1.66%/(5)/ 1.85%/(5)/ 2.34%/(3,5)/
-------- -------- -------- -------- -----------
Portfolio Turnover 37% 32% 27% 22% 8%
-------- -------- -------- -------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for
a period of less than one year is not annualized.
(3) Annualized.
(4) For fiscal periods ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank
(5) During the periods noted above, the Adviser waived a portion or all of its
fees. 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 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.
36
<PAGE>
[To be updated.]
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
January 3, 1995/(1)/
Year ended December 31 to December 31, 1995
---------------------- --------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.51 $ 10.38 $ 10.62 $ 10.00
------- --------- --------- -----------
Income (loss) from investment operations:
Net investment income 0.53 0.57 0.55 0.60
Net realized and unrealized gain (loss)
on investments 0.31 0.14 (0.24) 0.68
------- --------- --------- -----------
Total income from investment operations 0.84 0.71 0.31 1.28
------- --------- --------- -----------
Dividends and distributions to shareholders:
From net investment income (0.53) (0.57) (0.55) (0.60)
From net realized gains (0.16) (0.01) -- (0.06)
------- --------- --------- -----------
Total dividends and distributions to
shareholders (0.69) (0.58) (0.55) (0.66)
------- --------- --------- -----------
Net asset value, end of period $ 10.66 $ 10.51 $ 10.38 $ 10.62
======= ========= ========= ===========
Total Return/(2)/ 8.1% 7.0% 3.0% 13.1%
======= ========= ========= ===========
Net assets, end of period (000's) $10,542 $ 6,983 $ 3,422 $ 1,442
------- --------- --------- -----------
Ratio of net operating expenses
to average net assets/(4)/ 1.00% 0.93%/(5)/ 0.96%/(5)/ 0.75%/(3,5)/
------- --------- --------- -----------
Ratio of net investment income
to average net assets 4.96% 5.51%/(5)/ 5.27% 5.75%/(3,5)/
------- --------- --------- -----------
Portfolio Turnover 80% 80% 31% 65%
------- --------- --------- -----------
</TABLE>
- -------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Total return for
a period of less than one year is not annualized.
(3) Annualized.
(4) Inclusive of expenses offset by earnings credits from
custodian bank.
(5) 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 and 2.34% and 3.87%,
respectively, for the year ended December 31, 1996, and 1996, and 4.73% and
1.77%, annualized, respectively, for the period January 3, 1995
(commencement of operations) to December 31, 1995.
37
<PAGE>
For investors who want more information about the Portfolios, the following
documents are available free upon request:
Annual/Semi-annual Reports: Additional information about the Portfolios'
investments is available in the Portfolios' annual and semi-annual reports to
shareholders. In each Portfolio's annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Portfolio's performance during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Portfolios and is incorporated into this prospectus by
reference.
The SAI and the Portfolios' annual and semi-annual reports are available without
charge upon request to your broker or by calling the Portfolios at 1-800-700-
8258.
You can review and copy the Portfolios' reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. You can get text-only copies:
Upon payment of a duplicating fee, by writing to or calling the Public Reference
Room of the Commission, Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
Free from the Commission's Internet website at http://www.sec.gov.
(Investment Company Act file no. 811-8512)
OCC Accumulation Trust
Equity Portfolio
Blended Equity Portfolio
Large Cap Portfolio
Small Cap Portfolio
Target Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Innovation Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income
Portfolio
38
<PAGE>
Statement of Additional Information
OCC Accumulation Trust
Equity Portfolio
Blended Equity Portfolio
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Target Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Innovation Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
1345 Avenue of the Americas
New York, NY 10105
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. Investors should understand that this Additional Statement should
be read in conjunction with the Prospectus dated _________, 2000 (the
"Prospectus") of OCC Accumulation Trust (the "Fund"). Contract owners can
obtain copies of the Fund Prospectus by written request to the life insurance
company who issued the Contract at the address delineated in the Variable
Account Prospectus or by calling the life insurance company who issued the
Contract at the telephone number listed in the Variable Account Prospectus.
The date of this Additional Statement is ___________, 2000.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
----
Investment of Assets................................
Investment Restrictions.............................
Trustees and Officers...............................
Control Persons.....................................
Investment Management and Other Services............
Determination of Net Asset Value....................
Dividends, Distribution and Taxes...................
Portfolio Yield and Total Return Information........
Additional Information..............................
Financial Statements................................ A-1
</TABLE>
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. Some obligations issued or guaranteed by U.S. government
agencies or Instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
Collateralized Mortgage Obligations. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
3
<PAGE>
liquidity of an investment in such obligations. Investments will only be made
in collateralized mortgage obligations which are of high quality, as determined
by the Board of Trustees.
Commercial Mortgage-Backed Securities ("CMBS"). Each of the Blended
Equity, Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may
invest in CMBS. CMBS are generally multi-class or pass-through securities
backed by a mortgage loan or a pool of mortgage loans secured by commercial
property, such as industrial and warehouse properties, office buildings, retail
space and shopping malls, multifamily properties and cooperative apartments. The
commercial mortgage loans that underlie CMBS have certain distinct
characteristics. Commercial mortgage loans are generally not amortizing or not
fully amortizing. That is, at their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid through the attainment of an
additional loan or sale of the property. Unlike most single family residential
mortgages, commercial real estate property loans often contain provisions which
substantially reduce the likelihood that such securities will be prepaid. The
provisions generally impose significant prepayment penalties on loans and, in
some cases there may be prohibitions on principal prepayments for several years
following origination.
Stripped Mortgage-Backed Securities ("SMBs"). Each of the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may invest
in SMBs. SMBs are usually structured with two classes that receive specified
proportions of the monthly interest and principal payments from a pool of
mortgage securities. One class may receive all of the interest payments while
the other class may receive all of the principal payments. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
4
<PAGE>
Asset-Backed Securities. Each of the Blended Equity, Large Cap Growth,
Small Cap Growth, Target and Innovation Portfolios may invest in asset-backed
securities. Asset-backed securities may be structured as undivided fractional
ownership interests in an underlying pool of assets or as debt instruments
issued by a special purpose entity organized solely for the purpose of owning
these assets and issuing such debt. Examples of assets used to back asset-
backed securities include motor vehicle installment sales contracts, installment
loans secured by motor vehicles, receivables representing amounts owed by
businesses to vendors or other trade creditors and receivables from revolving
credit (credit card) agreements.
Asset-backed securities present certain risks. Some asset-backed
securities may be subject to the prepayment and extension risks. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Trade receivables may also be unsecured.
Most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing these receivables. Therefore, it is
possible that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
5
<PAGE>
Other types of asset-backed securities will be subject to the risks
associated with the underlying assets. If a letter of credit or other form of
credit enhancement is exhausted or otherwise unavailable, holders of asset-
backed securities may also experience delays in payments or losses if the full
amounts due on underlying assets are not realized.
Information on Time Deposits and Variable Rate Notes. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus.
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing basis,
OpCap Advisors (the "Manager") will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. The Portfolios will not invest more than 5% of
their total assets in variable
6
<PAGE>
rate notes. Variable rate notes are subject to the Portfolios' investment
restrictions on illiquid securities unless such notes can be put back to the
issuer on demand within seven days.
Insured Bank Obligations. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. The Portfolio
may, within the limits set forth in the Prospectus, purchase bank obligations
which are fully insured as to principal by the FDIC. Currently, to remain fully
insured as to principal, these investments must be limited to $100,000 per bank;
if the principal amount and accrued interest together exceed $100,000, the
excess principal amount and accrued interest will not be insured. Insured bank
obligations may have limited marketability. Unless the Board of Trustees
determines that a readily available market exists for such obligations, a
Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus for each Portfolio unless such
obligations are payable at principal amount plus accrued interest on demand or
within seven days after demand.
Lower Rated Bonds. Each Portfolio (except the Blended Equity, Large Cap
Growth, Small Cap Growth, Target and Innovation Portfolios) may invest up to 5%
of its assets in bonds rated below Baa3 by Moody's Investors Service, Inc.
("Moody's") or BBB- by Standard & Poor's Corporation ("S&P"), Fitch Investors
Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"). These securities are
commonly known as "junk bonds." The Balanced Portfolio may invest up to 25% of
its assets in junk bonds. Securities rated less than Baa by Moody's or BBB- by
S&P are classified as non-investment grade securities and are considered
speculative by those rating agencies. It is the Fund's policy not to rely
exclusively on ratings issued by credit rating agencies but to supplement such
ratings with the Manager's own independent and ongoing review of credit quality.
Junk bonds may be issued as a consequence of corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events or by smaller or highly leveraged companies. Although the growth of the
high yield
7
<PAGE>
securities market in the 1980s had paralleled a long economic expansion,
recently many issuers have been affected by adverse economic and market
conditions. It should be recognized that an economic downturn or increase in
interest rates is likely to have a negative effect on (i) the high yield bond
market, (ii) the value of high yield securities and (iii) the ability of the
securities' issuers to service their principal and interest payment obligations,
to meet their projected business goals or to obtain additional financing. The
market for junk bonds may be less liquid than the market for investment grade
bonds. In periods of reduced market liquidity, junk bond prices may become more
volatile and may experience sudden and substantial price declines. Also, there
may be significant disparities in the prices quoted for junk bonds by various
dealers. Under such conditions, a Portfolio may find it difficult to value its
junk bonds accurately. Under such conditions, a Portfolio may have to use
subjective rather than objective criteria to value its junk bond investments
accurately and rely more heavily on the judgment of the Fund's Board of
Trustees. Prices for junk bonds also may be affected by legislative and
regulatory developments. For example, new federal rules require that savings and
loans gradually reduce their holdings of high-yield securities. Also, from time
to time, Congress has considered legislation to restrict or eliminate the
corporate tax deduction for interest payments or to regulate corporate
restructurings such as takeovers, mergers or leveraged buyouts. Such
legislation, if enacted, may depress the prices of outstanding junk bonds.
Dollar Rolls. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
8
<PAGE>
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll
files for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
Portfolio Securities Loans. The Fund on behalf of the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may lend
portfolio securities to unaffiliated brokers, dealers and financial
institutions, provided that the borrower must deposit with the Portfolio
collateral, in the form of cash, equal to at least 100% of the market value of
the loaned securities, marked to market daily. While the securities are on
loan, the borrower must pay the Portfolio any income accruing thereon. The
borrower also compensates the Portfolio by paying a loan fee or by allowing the
Portfolio to retain any income earned on the investment of the cash collateral
in portfolio securities. Although investment of the collateral may increase the
Portfolio's potential return, it will also increase the Portfolio's potential
for loss.
A Portfolio normally will lend securities subject to termination by the
Portfolio in the normal settlement time or by the borrower on one day's notice.
The borrower must return the securities, and the Portfolio must return the
collateral, when the loan is terminated. Any gain or
9
<PAGE>
loss in the market price of the borrowed securities that occurs during the term
of the loan is borne by the Portfolio and its shareholders, except that gains
cannot be realized if the borrower defaults on its obligation to return the
borrowed securities. The Portfolio may pay reasonable finders', administrative
and custodial fees in connection with a loan of securities.
Repurchase Agreements. The Fund on behalf of a Portfolio may enter into
repurchase agreements with broker-dealers, member banks of the Federal Reserve
System and other financial institutions. Repurchase agreements are arrangements
under which a Portfolio purchases securities and the seller agrees to repurchase
the securities within a specific time and at a specific price. The repurchase
price is generally higher than the Portfolio's purchase price, with the
difference being income to the Portfolio. The counterparty's obligations under
the repurchase agreement are collateralized with U.S. government securities with
a market value of not less than 100% of the counterparty's obligations, valued
daily. Collateral is held by the Fund's custodian for the benefit of the
Portfolio.
Repurchase agreements afford a Portfolio an opportunity to earn income on
temporarily available cash at low risk. If bankruptcy or insolvency proceedings
are commenced with respect to the counterparty before repurchase of the security
under a repurchase agreement, a Portfolio may encounter delay and incur costs
before being able to sell the security. Such a delay may involve loss of
interest or a decline in price of the security. If the court characterizes the
transaction as a loan and the Portfolio has not perfected a security interest in
the security, the Portfolio may be required to return the security to the
seller's estate and be treated as an unsecured creditor of the seller. As an
unsecured creditor, the Fund would be at risk of losing some or all of the
principal and interest involved in the transaction.
10
<PAGE>
To minimize the risk of counterparty default, the investment manager
reviews and monitors the creditworthiness of any institution which enters into a
repurchase agreement with the Fund.
Reverse Repurchase Agreements. The Fund on behalf of the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may enter
into reverse repurchase agreements with broker-dealers, member banks of the
Federal Reserve System and other financial institutions. Reverse repurchase
agreements are arrangements under which a Portfolio sells securities and agrees
to repurchase the securities within a specific time and at a specified price.
The repurchase price is generally higher than the Portfolio's sale price, with
the difference representing the cost to the Portfolio of borrowing the cash
received on the sale. Reverse repurchase agreements involve the risk that the
market value of the securities which the Portfolio is obligated to repurchase
may decline below the repurchase price or that the counterparty may default on
its obligation to resell the securities. Repurchase agreements are considered
to be a form of, and are subject to the Fund's restrictions on, borrowing.
Hedging. As stated in the Prospectus, the Blended Equity, Large Cap
Growth, Small Cap Growth, Target, Innovation, Global Equity, Managed, Balanced,
Mid Cap, Small Cap and Equity Portfolios may engage in options and futures.
Information about the options and futures transactions these Portfolios may
enter into is set forth below.
Financial Futures. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is
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marked to market to reflect changes in its market value, subsequent payments,
called variation margin, will be made to or from the futures commission merchant
on a daily basis. Prior to expiration of the future, if a portfolio elects to
close out its position by taking an opposite position, a final determination of
variation margin is made, additional cash is required to be paid by or released
to the portfolio, and any loss or gain is realized for tax purposes. Although
financial futures by their terms call for the actual delivery or acquisition of
the specified security, in most cases the obligation is fulfilled by closing out
the position. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded. The Blended
Equity, Large Cap Growth, Small Cap Growth, Target, Innovation and Global Equity
Portfolios may purchase and sell futures contracts that are currently traded, or
may in the future be traded, on U.S. and foreign commodity exchanges on common
stocks, such underlying fixed-income securities as U.S. Treasury bonds, notes,
and bills and/or any foreign government fixed-income security ("interest rate"
futures), on various currencies ("currency" futures) and on such indices of U.S.
or foreign equity and fixed-income securities as may exist or come into being,
such as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity
Index ("index" futures). At present, no Portfolio intends to enter into
financial futures and options on such futures if after any such purchase, the
sum of initial margin deposits on futures and premiums paid on futures options
would exceed 5% of the Portfolio's total assets. This limitation is not a
fundamental policy.
Information on Puts and Calls. The Blended Equity, Large Cap Growth, Small
Cap Growth, Target, Mid Cap, Balanced, Managed, Small Cap, Innovation and Equity
Portfolios may write calls on individual securities. The Blended Equity, Large
Cap Growth, Small Cap Growth, Target, Mid Cap, Managed, Innovation, Balanced and
Global Equity Portfolios are authorized to write covered put and call options
and purchase put and call options on the securities in which they may invest.
When a portfolio writes a call, it receives a premium and agrees to sell the
callable securities to a purchaser of a
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corresponding call during the call period (usually not more than 9 months) at a
fixed exercise price (which may differ from the market price of the underlying
securities) regardless of market price changes during the call period. If the
call is exercised, the portfolio forgoes any possible profit from an increase in
market price over the exercise price. A portfolio may, in the case of listed
options, purchase calls in "closing purchase transactions" to terminate a call
obligation. A profit or loss will be realized, depending upon whether the net of
the amount of option transaction costs and the premium received on the call
written is more or less than the price of the call subsequently purchased. A
profit may be realized if the call lapses unexercised, because the portfolio
retains the underlying security and the premium received. If, due to a lack of a
market, a portfolio could not effect a closing purchase transaction, it would
have to hold the callable securities until the call lapsed or was exercised. The
Fund's Custodian, or a securities depository acting for the Custodian, will act
as the portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC") in connection with listed calls, as to the securities on
which the portfolio has written calls, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the portfolio's
entering into a closing purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the portfolio will lose its
premium payment and the right to purchase the underlying investment.
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With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the securities underlying an option it has
written, in accordance with the terms of that option as written, a portfolio
could lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Portfolios will engage in OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the portfolio has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the portfolio assets used to "cover" the OTC option will be
considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the portfolio for writing the option plus
the amount, if any, of the option's intrinsic value, i.e., current market value
of the underlying securities minus the option's strike price.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium received on a put written by a portfolio represents a profit, as
long as the price of the underlying investment remains above the exercise price.
However, a portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market
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value of the investment at that time. In that case, the portfolio may incur a
loss upon disposition, equal to the sum of the sale price of the underlying
investment and the premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund, on behalf of a portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at least
the exercise price of the option. As a result, the portfolio forgoes the
opportunity of trading the segregated assets or writing calls against those
assets. As long as the portfolio's obligation as a put writer continues, the
portfolio may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring the portfolio to purchase the underlying
security at the exercise price. A portfolio has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. This obligation terminates upon the earlier of the
expiration of the put, or the consummation by the portfolio of a closing
purchase transaction by purchasing a put of the same series as that previously
sold. Once a portfolio has been assigned an exercise notice, it is thereafter
not allowed to effect a closing purchase transaction.
A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
portfolio. The portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
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When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its expiration date and
the purchasing portfolio will lose the premium paid and the right to sell the
underlying securities; the put may, however, be sold prior to expiration
(whether or not at a profit). Purchasing a put on futures or securities not
held by it permits a portfolio to protect its securities holdings against a
decline in the market to the extent that the prices of the future or securities
underlying the put move in a similar pattern to the prices of a portfolio's
securities.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a portfolio may cause the portfolio to sell its
securities to cover the call, thus increasing its turnover rate in a manner
beyond the portfolio's control. The exercise of puts on securities or futures
will increase portfolio turnover. Although such exercise is within the
portfolio's control, holding a put might cause a portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.
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Options on Futures. The Blended Equity, Large Cap Growth, Small Cap
Growth, Target, Global Equity, Balanced, Managed, Mid Cap, Small Cap, Innovation
and Equity Portfolios may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid)
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time during the term of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option is accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against
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increasing prices of the security which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the option is higher
than the exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Portfolio intends to purchase. If a put or call option the
Portfolio has written is exercised, the Portfolio will incur a loss which will
be reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Portfolio's losses from existing
options may to some extent be reduced or increased by changes in the value of
its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge the
Portfolio's holdings against the risk of a decline in securities prices.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Stock Index Futures and Related Options. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open
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contracts are required to be reflected in cash in the form of variation margin
payments, the Portfolio may be required to make additional payments during the
term of the contract to its broker. Such payments would be required where during
the term of a stock index futures contract purchased by the Portfolio, the price
of the underlying stock index declined, thereby making the Portfolio's position
less valuable. In all instances involving the purchase of stock index futures
contracts by the Portfolio resulting in a net long position, an amount of cash
and cash equivalents equal to the market value of the futures contracts will be
deposited in a segregated account with the Fund's custodian, for the benefit of
the Portfolio, to collateralize the position and thereby insure that the use of
such futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the price of the stock index future moves less than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective, but, if the price of the securities being hedged has moved in
an unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction this advantage will be partially offset by the future. If
the price of the futures moves more than the price of the stock the Portfolio
will experience a loss or a gain on the future which will not be completely
offset by movement in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the stock index futures,
the Portfolio may buy or sell stock index futures in a
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greater dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the prices of such securities has been greater than
the historical volatility of the index. Conversely, the Portfolio may buy or
sell fewer stock index futures contracts if the historical volatility of the
price of the securities being hedged is less than the historical volatility of
the stock index. It is possible that where the Portfolio has sold futures to
hedge its portfolio against a decline in the market, the market may advance and
the Portfolio's securities may decline. If this occurred, the Portfolio would
lose money on the futures and also experience a decline in the value of its
securities. While this should occur, if at all, for a very brief period or to a
very small degree, the Manager believes that over time the value of a
diversified portfolio will tend to move in the same direction as the market
indices upon which the futures are based. It is also possible that if the
Portfolio hedges against the possibility of a decline in the market adversely
affecting stocks it holds and stock prices increase instead, the Portfolio will
lose part or all of the benefit of the increased value of its stock which it had
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. Such sales
of securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may also have to sell securities at a
time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of
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stock index futures may not correlate perfectly with movements in the stock
index due to certain market distortions. All participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the index and futures markets. Moreover, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market and may therefore cause increased participation by speculators in the
market. Such increased participation may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the stock index and movements in
the price of stock index futures, the value of stock index futures contracts as
a hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge a portfolio's
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of securities
will, in fact, correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
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In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
Regulatory Aspects of Hedging Instruments. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such
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transactions are for bona fide hedging purposes, or for other purposes only if
the aggregate initial margins and premiums required to establish such non-
hedging positions would not exceed 5% of the liquidation value of its assets.
Each Portfolio may use futures and options thereon for bona fide hedging or for
other purposes within the meaning and intent of the applicable provisions of the
CEA.
Tax Aspects of Hedging Instruments. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code.
One of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. In connection with the 90% test, amendments to the
Internal Revenue Code specify that income from hedging options, futures and
other gains derived from hedging investments in securities is qualifying income
under the 90% test.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked-to-market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section 1256 contracts sold by a
portfolio during the year, and the resulting gain or loss will be deemed to
consist of 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A portfolio may elect to exclude certain transactions from the mark-to-
market rule although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed annually to meet
income distribution requirements, currently at 98%, to avoid payment of federal
excise tax.
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It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
Possible Risk Factors in Hedging. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further
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market decline or for other reasons, it will realize a loss on the Hedging
Instruments that is not offset by a reduction in the price of the securities
purchased.
Investment in Foreign Securities. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Blended Equity, Large Cap Growth,
Small Cap Growth, Target, Balanced, Mid Cap, Small Cap, Innovation and Managed
Portfolios may purchase foreign securities provided that they are listed on a
domestic or foreign securities exchange or represented by American depository
receipts listed on a domestic securities exchange or traded in a domestic or
foreign over-the-counter market. Except for the Blended Equity, Large Cap
Growth, Small Cap Growth, Target and Innovation Portfolios, there is no limit on
the amount of such foreign securities that a Portfolio might acquire. Each of
the Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios may invest up to 15% of its assets in foreign securities.
The Portfolios will hold foreign currency in connection with the purchase
or sale of securities on a foreign securities exchange. To the extent that
foreign currency is so held, there may be a risk due to foreign currency
exchange rate fluctuations. Such foreign currency and foreign securities will
be held by the Fund's custodian bank, or by a foreign branch of a U.S. bank,
acting as subcustodian, on behalf of the Portfolio. The custodian bank will
hold such foreign securities pursuant to such arrangements as are permitted by
applicable foreign and domestic law and custom.
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
connection with the exchange of currency. There may be less publicly available
information about a
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foreign company than about a domestic company. Foreign companies are generally
not subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock markets
have substantially less volume than the New York Stock Exchange and securities
of some foreign companies are less liquid and more volatile than securities of
comparable domestic companies. There is generally less government regulation of
foreign stock exchanges, brokers, and listed companies than there is in the
United States. In addition, with respect to certain foreign countries, there is
a possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could adversely affect investment
in securities of issuers located in those countries. Individual foreign
economies may differ favorable or unfavorably from the United States economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. If it
should become necessary, the Portfolios would normally encounter greater
difficulties in commencing a lawsuit against the issuer of a foreign security
than it would against a United States issuer.
Investments in Emerging Markets. Emerging and developing markets abroad
may offer special opportunities for investing but have greater risks than more
developed foreign markets, such as those in Europe, Canada, Australia, New
Zealand and Japan. There may be even less liquidity in their securities
markets, and settlements of purchases and sales of securities may be subject to
additional delays. They are subject to greater risks of limitations on the
repatriation of income and profits because of currency restrictions imposed by
local governments. Those counties may also be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of
prices of securities in those countries. OpCap Advisors will consider these
factors when evaluating securities in these markets.
Foreign Currency Transactions. The Blended Equity, Large Cap Growth, Small
Cap Growth, Target, Global Equity, Balanced, Equity, Mid Cap, Small Cap,
Innovation and Managed
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Portfolios do not intend to speculate in foreign currency. When a Portfolio
agrees to purchase or sell a security in a foreign market it will generally be
obligated to pay or entitled to receive a specified amount of foreign currency
and will then generally convert dollars to that currency in the case of a
purchase or that currency to dollars in the case of a sale. The Blended Equity,
Large Cap Growth, Small Cap Growth, Target, Global Equity, Balanced, Mid Cap,
Equity, Small Cap, Innovation and Managed Portfolios intend to conduct their
foreign currency exchange transactions on a spot basis (i.e., cash) at the spot
rate prevailing in the foreign currency exchange market or through entering into
forward foreign currency contracts ("forward contracts") to purchase or sell
foreign currencies. Such Portfolios may enter into forward contracts in order to
lock in the U.S. dollar amount they must pay or expect to receive for a security
they have agreed to buy or sell or with respect to their positions when the
Portfolios believe that a particular currency may change unfavorably compared to
the U.S. dollar. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or
27
<PAGE>
they may retain the security and terminate their contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract obligating
them to purchase, on the same settlement date, the same amount of foreign
currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
futures
28
<PAGE>
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Internal Revenue Code Section
988. Also, certain foreign exchange gains or losses derived with respect to
fixed-income securities are also subject to Section 988 treatment. In general,
Internal Revenue Code Section 988 gains or losses will increase or decrease the
amount of the Portfolio's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Portfolio's net capital gain. Additionally, if
Internal Revenue Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Portfolio would not be able to make any
ordinary income distributions.
Foreign Custody. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees or by the trustees' delegate in accordance with such
Rules. The trustees or their delegate will determine that the Portfolios' assets
will be subject to reasonable care, based on standards applicable to custodians
in the relevant market, after considering all factors relevant to the
safekeeping of such assets including but not limited to, the custodian's
practices, procedures and internal controls; the custodian's general reputation;
and whether the Portfolios will have jurisdiction against the custodian.
However, no assurances can be given that the trustees' or their delegates'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct or that expropriation, nationalization, freezes (including
currency blockage), confiscations or any other loss of assets that would affect
assets of the Portfolio will not occur, and shareholders bear the risk of losses
arising from those or other similar events.
Convertible Securities. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to
29
<PAGE>
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.
Foreign and Domestic Security Selection Process. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets, security selection is
designed to reduce risk through a value oriented approach in which emphasis is
placed on identifying well-
30
<PAGE>
managed companies which, in the case of the Global Equity Portfolio, represent
exceptional values in terms of such factors as assets, earnings and growth
potential.
Investing in Small and Medium Capitalization Companies. Investing in the
equity securities of small and medium capitalization companies involve
additional risks compared to investing in large capitalization companies.
Compared to large companies, these companies may:
. Have more limited product lines and capital resources
. Have less established markets for their products
. Have earnings that are more sensitive to changes in the economy, competition
and technology
. Be more dependent upon key members of management.
The market value of the common stock of small and medium capitalization
companies may:
. Be more volatile, particularly in response to company announcements or
industry events
. Have less active trading markets
. Be harder to sell at the time and prices that the adviser considers
appropriate.
When-Issued, Delayed Delivery and Forward Commitment Securities. The
Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios may purchase or sell securities in a transaction where the payment
obligation and interest rate on the securities are fixed at the time the
Portfolio enters into the commitment, but interest will not accrue to the
Portfolio until delivery of and payment for the securities. Securities
purchased or sold in this way, alternatively referred to as 'when issued',
'delayed delivery' or 'forward commitment' securities, may have a market value
on delivery which is less than the amount paid by the Portfolio. Although the
Portfolio will only make commitments to purchase securities on a forward
commitment basis with the intention of actually acquiring the securities, the
Portfolio may sell the securities before the settlement date if deemed advisable
by the adviser. Unless the Portfolio has entered into an offsetting agreement
to sell the securities purchased on a forward commitment basis, it will maintain
a segregated account consisting of cash or liquid securities with a value equal
to the
31
<PAGE>
Portfolio's purchase commitment. The assets in this account must be
adjusted daily to compensate for any decline in the value of the segregated
assets.
Investment in Other Investment Companies. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively, except that these limits do not apply if a portfolio is acquiring
securities of an investment company in the same group of investment companies,
the portfolio only invests in securities of other investment companies that are
part of the same group, government securities and short-term paper; sales or
distribution charges are charged only at one of the acquired or acquiring
investment companies and the acquired company has a policy restricting it from
investing in securities of other investment companies under these exceptions.
To the extent a Portfolio invests in securities in bearer form it may be more
difficult to recover securities in the event such securities are lost or stolen.
Passive Foreign Investment Company Income. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of
32
<PAGE>
certain technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the
Portfolio level which could not be eliminated by distributions to shareholders.
Under the Taxpayer Relief Act of 1997, a mark-to-market regime was established
that allows a regulated investment company ("RIC") to avoid most, if not all, of
the difficulties posed by the PFIC rules.
In any event, it is not anticipated that any taxes on a Portfolio with respect
to investments in PFIC's would be significant.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Fund as
fundamental policies which cannot be changed without the vote of a majority of
the outstanding voting securities of that Portfolio. Such a majority is defined
as the lesser of (a) 67% or more of the shares of the Portfolio present at the
meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy or (b)
more than 50% of the outstanding shares of the Portfolio. For the purposes of
the following restrictions and those contained in the Prospectus: (i) all
percentage limitations apply immediately after a purchase or initial investment,
unless specifically stated otherwise; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in the
amount of total assets does not require elimination of any security from the
Portfolio. The restrictions in 1, 2, and 3 do not apply to U.S. Government
securities.
Additional Restrictions Applicable to All Portfolios. Each Portfolio of
the Fund may not:
33
<PAGE>
1. Invest more than 5 percent of the value of its total assets in the
securities of any one issuer, or purchase more than 10 percent of the voting
securities, or more than 10 percent of any class of security, of any issuer (for
this purpose all outstanding debt securities of an issuer are considered as one
class and all preferred stock of an issuer are considered as one class).
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attaining its investment objective, a Portfolio may invest up to
25 percent of its total assets (valued at the time of investment) in any one
industry classification used by that Portfolio for investment purposes.
3. Except for the Small Cap Growth and Innovation Portfolios, invest more
than 5 percent of the value of its total assets in securities of issuers having
a record, together with predecessors, of less than three years of continuous
operation.
4. Borrow money in excess of 10 percent of the value of its total assets.
It may borrow only as a temporary measure for extraordinary or emergency
purposes and will make no additional investments while such borrowings exceed 5
percent of the total assets. Such prohibition against borrowing does not
prohibit escrow or other collateral or making arrangements in connection with
the hedging instruments which a Portfolio is permitted to use by any of its
other fundamental policies.
5. Invest more than 15 percent of its assets in illiquid securities
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days.
6. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in repurchase agreements; or (c) by
lending its portfolio securities, not in excess of 33% of the value of a
34
<PAGE>
Portfolio's total assets, made in accordance with guidelines adopted by the
Fund's Board of Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned.
7. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or trustee of the Fund or any officer or director of the Manager owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
8. Pledge its assets or assign or otherwise encumber them in excess of 10%
of its net assets (taken at market value at the time of pledging) and then only
to secure borrowings effected within the limitations set forth in the
Prospectus.
9. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
10. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
11. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
35
<PAGE>
12. Engage in the underwriting of securities except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
13. Invest for the purposes of exercising control or management of
another company.
14. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
15. Invest in physical commodities or physical commodity contracts.
However, the Fund may buy and sell hedging instruments to the extent specified
in the Prospectus or this Additional Statement from time to time. The Fund can
also buy and sell options, futures, securities or other instruments backed by,
or the investment return from which is linked to, changes in the price of
physical commodities.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in the amount of total assets does not
require elimination of any security from a Portfolio.
Restrictions Applicable to the Equity, Mid Cap, Managed, Global Equity,
Balanced and Small Cap Portfolios Only. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
36
<PAGE>
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Mid Cap, Managed, Global Equity, Balanced
and/or Small Cap Portfolios; however, each Portfolio will attempt to dispose in
an orderly fashion of any securities received under these circumstances to the
extent that such securities, together with other unmarketable securities, exceed
15% of that Portfolio's total assets.
Restrictions Applicable to the Blended Equity, Large Cap Growth, Small Cap
Growth, Target and Innovation Portfolios Only. Each of the above Portfolios may
not:
1. Invest more than 15 percent of its total assets in securities the
disposition of which is restricted under the federal securities laws (excluding
securities offered and sold under Rule 144A of the Securities Act of 1933 (the
"1933 Act") and commercial paper offered and sold under Section 4(2) of the 1933
Act), OTC Options and initial offerings and private offerings of SMBs.
2. Engage in short sales of securities or maintain a short position for
the account of a Portfolio unless the Portfolio owns an equal amount of the
securities or owns the right to acquire securities of the same issue as the
securities sold short without the payment of further consideration.
3. With respect to 75% of a Portfolio's total assets, invest more than 5%
of the assets in the securities of any one issuer (This limitation does not
apply to bank certificates of deposit or obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.).
37
<PAGE>
4. Write (sell) or purchase options except that each Portfolio may (a)
write covered call options or covered put options on securities that it is
eligible to purchase and enter into closing purchase transactions for those
options, and (b) purchase put and call options on securities indexes, options on
foreign currencies, options on futures contracts, and options on other financial
instruments or one or more groups of instruments, provided that the premiums
paid by each Portfolio on all outstanding options it has purchased do not exceed
5% of its total assets. Each Portfolio may enter into closing sale transactions
for options it purchased.
TRUSTEES AND OFFICERS
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of both OpCap Advisors and PIMCO
Advisors. Although the Fund will not normally hold annual meetings of its
shareholders, it may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to remove a Trustee
or to take other action described in the Fund's Declaration of Trust. The
trustees and officers of the Fund, and their principal occupations during the
past five years, are set forth below. Trustees who are "interested persons", as
defined in the 1940 Act, are denoted by an asterisk. The address of each is
1345 Avenue of the Americas, New York, New York 10105, except as noted. As of
March 31, 1999, the trustees and officers of the Fund as a group owned none of
its outstanding shares.
Joseph M. La Motta, Chairman of the Board of Trustees and President*
Age: 66
Chairman Emeritus of Oppenheimer Capital, a registered investment adviser;
Chairman of the Board and President of OCC Cash Reserves, Inc., an open-end
investment company; Chairman of the Board of Oppenheimer Capital Trust Company,
a New York trust company.
38
<PAGE>
Paul Y. Clinton, Trustee
39 Blossom Avenue
Osterville, Massachusetts 02655
Age: 67
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Convertible Securities
Fund, Oppenheimer Mid Cap Fund, and OCC Cash Reserves, Inc.; Trustee of OCC
Accumulation Trust and Oppenheimer Quest for Value Funds, each of which is an
open-end investment company.
Thomas W. Courtney, C.F.A., Trustee
833 Wyndemere Way
Naples, Florida 34105
Age: 65
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund; former President of Federated
Investment Counseling, Inc.; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term New
York Municipals and Bond Fund Series, Oppenheimer Convertible Securities Fund,
Oppenheimer Mid Cap Fund, OCC Cash Reserves, Inc., and Trustee of Oppenheimer
Quest for Value Funds, Cash Assets Trust, Hawaiian Tax-Free Trust and Tax Free
Trust of Arizona, each of which is an open-end investment company; former
Director of The Financial Analysts Federation.
Lacy B. Herrmann, Trustee
380 Madison Avenue, Suite 2300
New York, New York 10017
Age: 69
Chairman of the Board and Chief Executive Officer of Aquila Management
Corporation (since 1984) and Chairman of the Board of Trustees and President of
seven single state tax exempt bond funds, five money market funds and two equity
funds in the Aquila fund complex; Vice President, Director, Secretary, and
formerly Treasurer of Aquila Distributors, Inc. (since 1981), distributor of the
funds in the Aquila fund complex; Director, Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term New
York Municipals and Bond Fund Series, Oppenheimer Convertible Securities Fund,
Oppenheimer Mid Cap Fund, OCC Cash Reserves, Inc., Trustee of Oppenheimer Quest
for Value Funds, each of which is an open-end investment company; Trustee
Emeritus of Brown University since 1996; Trustee of the Hopkins School since
1993.
George Loft, Trustee
51 Herrick Road
Sharon, Connecticut 06069
Age: 84
Private Investor; Director of OCC Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Capital Value Fund, Inc., Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Convertible Securities Fund,
39
<PAGE>
Oppenheimer Mid Cap Fund, Oppenheimer Quest Global Value Fund, Inc., Trustee of
Oppenheimer Quest for Value Funds, all of which are open-end investment
companies.
40
<PAGE>
Brian Schlissel, Assistant Treasurer
Age: ____
Vice President of Oppenheimer Capital since 1999 [to be provided.]
Mark Degenhart, Vice President and Portfolio Manager
Age: 35
Vice President of Oppenheimer Capital since January 1999; previously, Director
of Research and Portfolio Manager of Palisades Capital Management, which he
joined in 1993.
Bernard H. Garil, Vice President
Age: 58
Managing Director of Oppenheimer Capital and President of The Central European
Value Fund.
Richard Glasebrook, Vice President and Portfolio Manager
Age: 50
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
Louis Goldstein, Vice President and Portfolio Manager
Age: 38
Senior Vice President, Oppenheimer Capital since 1998, joined Oppenheimer
Capital as Vice President and security analyst in 1991.
Alan Gutmann, Vice President and Portfolio Manager
Age: 38
Senior Vice President and Equity Portfolio Manager, Oppenheimer Capital; joined
Oppenheimer Capital in 1991 as a Security Analyst.
Vikki Hanges, Vice President & Portfolio Manager
Age: 39
Senior Vice President, Oppenheimer Capital since 1998; Vice President from 1992;
Assistant Vice President, 1987-1992.
Elloit Weiss, Secretary
Age: ___
[To be provided.]
Timothy McCormack, Vice President & Portfolio Manager
Age: 34
Senior Vice President, Oppenheimer Capital since 1998 and Vice President since
1995; joined Oppenheimer Capital in 1994.
41
<PAGE>
Lawrence K. Becker, Treasurer
Age: ___
Managing Director, Oppenheimer Capital; Treasurer of OCC Cash Reserves, Inc.,
an open-end investment company and Treasurer of The Central European Value Fund,
Inc. and Municipal Advantage Fund Inc., closed-end investment companies.
James Sheldon, Vice President and Portfolio Manager
Age: 46
Senior Vice President of Oppenheimer Capital since February 1998; General
Partner of Omega Advisers, a hedge fund, from September 1996 to February 1998
and Senior Vice President and International Portfolio Manager at Lazard Freres
Asset Management from December 1992 to August 1996.
Remuneration of Officers and Trustees. No officer of the Fund will receive
a salary or fee from the Fund. The following table sets forth the aggregate
compensation paid by the Fund to each of the Trustees during its fiscal year
ended December 31, 1998 and the aggregate compensation paid to each of the
Trustees by OCC Cash Reserves, Inc., a fund managed by OpCap Advisors, and by
six funds for which OpCap Advisors serves as sub-adviser during each such fund's
1998 fiscal year.
<TABLE>
<CAPTION>
For the Year ended December 31, 1999
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Pension or Total Compensation
Retirement from the Fund, OCC Cash
Aggregate Benefits Accrued Estimated Annual Reserves and Six
Name of Trustee Compensation as Part of Fund Benefits upon Oppenheimer Quest Funds
of the Fund from the Fund Expenses Retirement
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul Clinton $______ 0 0 $_______
- -------------------------------------------------------------------------------------------------------------
Thomas Courtney $______ 0 0 $_______
- -------------------------------------------------------------------------------------------------------------
Lacy Herrmann $______ 0 0 $_______
- -------------------------------------------------------------------------------------------------------------
Joseph La Motta 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
George Loft $______ 0 0 $_______
- -------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
On October 19, 1998 the Fund adopted a retirement plan (to become effective
January 1, 1999) that provides for payment to a retired Trustee of up to 80% of
the average compensation paid during that Trustee's five years of service in
which the highest compensation was received. A Trustee must serve in that
capacity for the Fund or OCC Cash Reserves, Inc. for at least 15 years to be
eligible for the maximum payment. Because each Trustee's retirement benefit
will depend on the amount of the Trustee's future compensation and length of
service, the amount of those benefits cannot be determined as of this time nor
can the Fund estimate the number of years of credited service that will be used
to determine those benefits.
43
<PAGE>
CONTROL PERSONS
As of December 31, 1999, shares of the Portfolios were held by Oppenheimer
Capital and the Variable Accounts of the following insurance companies, with the
figures beneath each Portfolio representing that company's holdings as a
percentage of each Portfolio's total outstanding shares.
Portfolio Shareholders of Record as of [December 31, 1999]1
<TABLE>
<CAPTION>
Portfolios
- --------------------------------------------------------------------------------------------------------------------
Shareholders U.S. Govt. Global Equity Small Cap Managed Mid Balanced
Income Equity Cap
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mutual Life _____% ____% ____% ____%
Insurance Company
of New York (New
York, NY) & The
MONY Life Insurance
Company of America
1740 Broadway
NY, NY 10019
- --------------------------------------------------------------------------------------------------------------------
Provident Mutual ____% ____% ____%
Life Insurance
Company &
Provident Mutual
Life and Annuity
Company of America
1600 Market St.
Philadelphia, PA
19103
- --------------------------------------------------------------------------------------------------------------------
Connecticut General ____% ____% ____%
Life Insurance
Company & CIGNA
Life Insurance
Company
350 Church Street
MLW 1, 12th Flr.
Hartford, CT
06103-1106
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Portfolios
- --------------------------------------------------------------------------------------------------------------------
Shareholders U.S. Govt. Global Equity Small Cap Managed Mid Balanced
Income Equity Cap
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Providian Life and _____% ____% ____%
Health Insurance
Company
400 West Market
Street, Louisville,
KY 40202
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Enterprise _____% ____% ____% ____%
Life Insurance
Company and
American Centurion
Life Insurance
Company
80 South Eighth
Street,
Minneapolis, MN
55402
- ---------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital _____%
1345 Avenue of the
Americas, New
York, NY 10105
- ---------------------------------------------------------------------------------------------------------------------
IL Annuity and ____% ____%
Insurance Company
2960 North Meridian
Street,
Indianapolis,
IN46208
- ---------------------------------------------------------------------------------------------------------------------
PRUCO Life Insurance _____% _____%
Company of New
Jersey and PRUCO
Life Insurance
Company 751 Broad
Street, Newark, NJ
07102
- ---------------------------------------------------------------------------------------------------------------------
Transamerica _____% _____%
Transamerica Center
1150 Olive Street,
Los Angeles, CA
90015
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Portfolios
- --------------------------------------------------------------------------------------------------------------------
Shareholders U.S. Govt. Global Equity Small Cap Managed Mid Balanced
Income Equity Cap
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ReliaStar Life ____% ____% ____% ____%
Insurance Company
20 Washington Avenue
South, Route 1237,
Minneapolis, MN
55401
- ---------------------------------------------------------------------------------------------------------------------
Sun Life of Canada ____% ____% ____% ____%
(U.S.)
Copley Place, Suite
200, Boston, MA
02117
- ---------------------------------------------------------------------------------------------------------------------
Travelers Insurance ____%
Company
One Tower Square,
Hartford, CT 06183
- ---------------------------------------------------------------------------------------------------------------------
Lincoln Life ____% ____% ____%
Insurance Company
1300 South Clinton
Street
Fort Wayne, IN 46802
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1This chart lists all Variable Account shareholders of record of the Portfolios
as of December 31, 1999, and all holdings of shares of the Portfolios by
Oppenheimer Capital, the parent of the Manager. To the best knowledge of the
Fund, no Contractowner held units equivalent to 5% or more of the shares of any
Portfolio of the Fund as of December 31, 1999.
Shares of the Mid Cap Portfolio were acquired by Oppenheimer Capital to
provide capital for the Portfolio so that the Manager could commence a
meaningful investment program for the Portfolios, pending the acquisition of
shares of the Portfolios by Variable Accounts. The shares held by the Variable
Accounts generally will be voted in accordance with instructions of
Contractowners. Under certain circumstances however, the insurance companies,
on behalf of their respective Variable Accounts, may disregard voting
instructions received from Contractowners. The shares held by Oppenheimer
Capital will be voted in the same proportions as those voted by the insurance
companies which are held in their respective Variable Accounts. Any shareholder
of record listed in the above chart beneficially owning
46
<PAGE>
more than 25% of a particular Portfolio's shares may be considered to be a
"controlling person" of that Portfolio by virtue of the definitions contained in
the 1940 Act. The vote of such shareholder of record could have a more
significant effect on matters presented to shareholders for approval than the
votes of the Fund's other shareholders.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Investment Adviser. OpCap Advisors acts as investment adviser to the
Portfolios of the Fund. The PIMCO Equity Advisers Division of PIMCO Advisors
L.P. ("PIMCO Advisors") acts as investment sub-adviser to the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios. PIMCO
Advisors L.P. ("PIMCO") acts as investment sub-advisors to the Managed
Portfolio.
OpCap Advisors, the investment adviser to the Fund (the "Manager"), is a
majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser whose employees perform all investment advisory and management services
provided to the Fund by the Advisor. Oppenheimer Capital is an indirect wholly
owned subsidiary of PIMCO, also a registered investment adviser. The general
partners of PIMCO are PIMCO Partners G.P. and PIMCO Advisors Holdings L.P. PIMCO
Partners, G.P. is a general partnership between PIMCO Holdings LLC, a Delaware
limited liability company and an indirect wholly-owned subsidiary of Pacific
Life Insurance Company, and PIMCO Partners LLC, a California limited liability
company controlled by the current Managing Directors and two former Managing
Directors of Pacific Investment Management Company, a subsidiary of PIMCO.
PIMCO Partners, G.P. is the sole general partner of PIMCO Advisors Holdings L.P.
47
<PAGE>
The Advisory Agreements. OpCap Advisors provides investment advisory and
management services to the Fund pursuant to an Advisory Agreement dated November
5, 1997. The OpCap Advisory Agreement was amended on February 1, 1998 to
provide that OpCap Advisors will limit total operating expenses of the Equity,
Mid Cap, Small Cap, Global Equity, Managed, Balanced and U.S. Government Income
Portfolios to 1.00% (net of any expense offsets) of their respective average
daily net assets and that the Adviser will limit total operating expenses of the
Global Equity Portfolio to 1.25% (net of any expense offsets) of its average
daily net assets.
PIMCO Equity Advisors provides investment advisory and management services
to the Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios of the Fund pursuant to a Sub-Advisory Agreement with OpCap Advisers
dated ______. PIMCO provides similar services to the Managed Portfolio of the
Fund pursuant to a Sub-Advisory Agreement with OpCap Advisers dated ______.
Under the OpCap Advisory Agreement and the Sub-Advisory Agreements, each
Adviser is required to: (i) regularly provide investment advice and
recommendations to each Portfolio of the Fund it manages with respect to
investments, investment policies and the purchase and sale of securities; (ii)
supervise continuously and determine the securities to be purchased or sold by
the Portfolios it manages and the portion, if any, of the assets of the
Portfolio to be held uninvested; and (iii) arrange for the purchase of
securities and other investments by each Portfolio it manages and the sale of
securities and other investments held by the Portfolio.
48
<PAGE>
The OpCap Advisory Agreement also requires OpCap Advisors to provide
administrative services for the Fund, including (1) coordination of the
functions of accountants, counsel and other parties performing services for the
Fund and (2) preparation and filing of reports required by federal securities
and "blue sky" laws, shareholder reports and proxy materials.
Expenses not expressly assumed by OpCap Advisors under the Advisory
Agreement or by OCC Distributors (the "Distributor") are paid by the Fund. The
OpCap Advisory Agreement lists examples of expenses paid by the Fund, of which
the major categories relate to interest, taxes, fees to non-interested trustees,
legal and audit expenses, custodian and transfer agent expenses, stock issuance
costs, certain printing and registration costs, and non-recurring expenses,
including litigation.
The Distributor is located at 1345 Avenue of the Americas, New York, New
York 10105 and serves as the general distributor for the Fund pursuant to a
General Distributors Agreement dated November 5, 1997. _____________, Secretary
of the Fund, is also the Secretary of the Distributor.
The Distributor acts as the exclusive agent for the sale of Fund shares in
a continuous public offering. Shares of the Fund are sold by the Distributor at
net asset value. The Distributor does not receive any compensation from the
Fund for acting as the Fund's general distributor.
For the fiscal year ended December 31,
49
<PAGE>
1997, the total advisory fees accrued or paid by the Equity, Managed, Small Cap,
U.S. Government Income and Global Equity Portfolios were $199,896, $2,321,835,
$498,382, $35,757 and $184,504, respectively, of which $8,028 and $2,537 was
waived by the Adviser with respect to the U.S. Government Income Portfolio, and
the Global Equity Portfolio, respectively. For the fiscal year ended December
31, 1998, the total advisory fees accrued or paid by the Equity, Managed, Small
Cap, U.S. Government Income, Global Equity and Mid Cap Portfolios were $291,218,
$5,140,492, $1,089,755, $49,774, $247,144 and $9,473, respectively, of which
$16,027, and $9,473 was waived by the Adviser with respect to the U.S.
Government Income Portfolio and the Mid Cap Portfolio. For the fiscal year ended
December 31, 1999, the total advisory fees accrued or paid by the Equity,
Managed, Small Cap, Balanced, U.S. Government Income, Global Equity and Mid Cap
Portfolios were $______, $______, $______, $______, $______, $______ and
$______, respectively, of which $______ and $______ was waived by the Adviser
with respect to the ___________ Portfolio and the __________ Portfolio,
respectively.
The advisory fee for the Equity, Global Equity, Managed, Small Cap, Mid Cap
and Balanced Portfolios is at the annual rate of .80% on the first $400 million
of average daily net assets, .75% on the next $400 million of average daily net
assets and .70% of average daily net assets in excess of $800 million. With
regard to the Managed portfolio, OpCap Advisors pays PIMCO a fee equal to .____%
of the average daily net assets of the Portfolio on an annual basis. The
advisory fee for the U.S. Government Income Portfolio is at the annual rate of
.60% of average daily net assets. The advisory fee for the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios is at set
an annual rate of .__% on the first $___ million of average daily net assets,
.__% on the next $___ million of average daily net assets and .__% on average
daily net assets in excess of $____. of which, .__% is paid to PIMCO Advisors
for sub-advisor services.
50
<PAGE>
The Advisory Agreement and each Sub-Advisory Agreement provide that in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard for its obligations thereunder, the Adviser or Sub-Adviser, as
applicable, is not liable for any act or omission in the course of, or in
connection with, the rendition of services thereunder. The Agreements permit
the Advisers to act as investment adviser for any other person, firm, or
corporation.
Portfolio Transactions. Portfolio decisions are based upon recommendations of
the Adviser, the sub-advisors and the judgment of the portfolio managers. As
most, if not all, purchases made by the U.S. Government Income Portfolio will be
principal transactions at net prices, the Portfolio pays no brokerage
commissions; however prices of debt obligations reflect mark-ups and mark-downs
which constitute compensation to the executing dealer. The Portfolios will pay
brokerage commissions on transactions in listed options and equity securities.
Prices of securities purchased from underwriters of new issues include a
commission or concession paid by the issuer to the underwriter, and prices of
debt securities purchased from dealers include a spread between the bid and
asked prices. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers during the course
of an underwriting in return for their brokerage and research services, which
are intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to the
Fund and/or other accounts of the Adviser and sub-advisers; information received
in connection with directed orders of other accounts managed by the Adviser, the
sub-advisers or their affiliates may or may not be useful to the Fund. Such
information may be in written or oral form and includes information on
particular companies and industries as well as market, economic or institutional
activity areas. It serves to broaden the scope and supplement the research
activities of the Adviser and the sub-adviser, to make available additional
views for consideration and comparison, and to enable the Adviser and each
sub-
51
<PAGE>
adviser to obtain market information for the valuation of securities held by the
Fund. For the year ended December 31, 1999, the aggregate dollar amount in such
transactions was $__________ with related Commissions of $____________. For the
year ended December 31, 1998, the aggregate dollar amount involved in such
transactions was $68,855,295 with related commissions of $100,584.
Sales of shares of the Fund, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to brokers and dealers, but only in
conformity with the price, execution and other considerations and practices
discussed above. The Fund may execute brokerage transactions through CIBC
Oppenheimer Corp., Inc. ("CIBC Oppenheimer"), which prior to the consummation of
the acquisition by PIMCO Advisors of Oppenheimer Capital and OpCap Advisors on
November 4, 1997, was an affiliated broker-dealer.
The following table presents information as to the allocation of brokerage
commissions paid to CIBC Oppenheimer by the Equity, Global Equity, Managed, and
Small Cap Portfolios for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Portfolio Total Brokerage
Commission Paid
- ----------------------------------------
1997
- ----------------------------------------
<S> <C>
Equity $ 21,025
- ----------------------------------------
Managed 224,795
- ----------------------------------------
Small Cap 213,701
- ----------------------------------------
Global Equity 49,976
- ----------------------------------------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Portfolio Brokerage Commission
Paid to CIBC Oppenheimer
- ---------------------------------------------------
1997 1997
- ---------------------------------------------------
<S> <C> <C>
Equity $ 5,221 24.8
- ---------------------------------------------------
Managed 82,229 36.6
- ---------------------------------------------------
Small Cap 76,787 35.9
- ---------------------------------------------------
Global Equity 4,675 9.4
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Portfolio Total Amount of Transactions
Where Brokerage Commissions Paid to CIBC
Oppenheimer
- ----------------------------------------------------------
1997 1997
- ----------------------------------------------------------
<S> <C> <C>
Equity $ 4,578,999 32.9
- ----------------------------------------------------------
Managed 78,122,478 36.2
- ----------------------------------------------------------
Small Cap 32,932,369 38.1
- ----------------------------------------------------------
Global Equity 5,840,385 27.0
- ----------------------------------------------------------
</TABLE>
1The Fund did not effect principal transactions with CIBC Oppenheimer while it
was an affiliated broker-dealer. When the Fund effects principal transactions
with other broker-dealers commissions are imputed.
The Adviser, the sub-advisers and Oppenheimer Capital currently serve as
investment manager to a number of clients, including other investment companies,
and may in the future act as investment manager or adviser to others. It is the
practice of the Adviser and each sub-adviser to cause purchase or sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for managing the Portfolios of the Fund and other client accounts.
When orders to purchase or sell the same security on identical terms are placed
by more than
53
<PAGE>
one of the funds and/or other advisory accounts managed by the Adviser, a sub-
adviser or its affiliates, the transactions are generally executed as received,
although a fund or advisory account that does not direct trades to a specific
broker ("free trades") usually will have its order executed first. Purchases are
combined where possible for the purpose of negotiating brokerage commissions,
which in some cases might have a detrimental effect on the price or volume of
the security in a particular transaction as far as the Fund is concerned. Orders
placed by accounts that direct trades to a specific broker will generally be
executed after the free trades. All orders placed on behalf of the Fund are
considered free trades. However, having an order placed first in the market does
not necessarily guarantee the most favorable price.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each of the Portfolios of the Fund is
determined each day the New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the NYSE that day, by dividing the value
of the Fund's net assets by the number of shares outstanding. The NYSE's most
recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Martin Luther King's Birthday, Presidents' Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving and Christmas Day. It
may also close on other days.
Securities listed on a national securities exchange or designated national
market system securities are valued at the last reported sale price on that day,
or, if there has been no sale on such day or on the previous day on which the
Exchange was open (if a week has not elapsed between such days), then the value
of such security is taken to be the reported bid price at the time as of which
the value is being ascertained. Securities actively traded in the over-the-
counter market but not designated as national market system securities are
valued at the last quoted bid price. Any securities or other assets for which
current market quotations are not readily available are valued at their fair
value as determined in good
54
<PAGE>
faith under procedures established by and under the general supervision and
responsibility of the Fund's Board of Trustees. The value of a foreign security
is determined in its national currency and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect on the date of
valuation.
The Fund's Board of Trustees has approved the use of nationally recognized
bond pricing services for the valuation of each Portfolio's debt securities.
The service selected by the Manager creates and maintains price matrices of U.S.
Government and other securities from which individual holdings are valued
shortly after the close of business each trading day. Debt securities not
covered by the pricing service are valued based upon bid prices obtained from
dealers who maintain an active market therein or, if no readily available market
quotations are available from dealers, such securities (including restricted
securities and OTC options) are valued at fair value under the Board of
Trustees' procedures. Short-term (having a remaining maturity of more than
sixty days) debt securities are valued on a "marked-to-market" basis, that is,
at prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term (having a maturity of 60 days or less) debt
securities are valued at amortized cost or value.
Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the spread
between the closing bid and asked prices on the valuation date. Futures are
valued based on their daily settlement value. When a Portfolio writes a call,
an amount equal to the premium received is included in the Portfolio's Statement
of Assets and Liabilities as an asset, and an equivalent credit is included in
the liability section. The credit is adjusted ("marked-to-market") to reflect
the current market value of the call. If a call written by a Portfolio is
exercised, the proceeds on the sale of the underlying securities are increased
by the premium received. If a call or put written by a Portfolio
55
<PAGE>
expires on its stipulated expiration date the Portfolio will realize a gain
equal to the amount of the premium received. If a Portfolio enters into a
closing transaction, it will realize a gain or loss depending on whether the
premium was more or less than the transaction costs, without regard to
unrealized appreciation or depreciation on the underlying securities. If a put
held by a Portfolio is exercised by it, the amount the Portfolio receives on its
sale of the underlying investment is reduced by the amount of the premium paid
by the Portfolio.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The dividend policies of the Portfolios are discussed in the Prospectus.
In computing interest income, these Portfolios will accrete any discount or
amortize any premium resulting from the purchase of debt securities except for
mortgage or other receivables-backed obligations subject to monthly payment of
principal and interest.
Capital Gains and Losses. Gains or losses on the sales of securities by
the Fund will be long-term capital gains or losses if the securities have been
held by the Fund for more than twelve months, regardless of how long you have
held your shares. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
PORTFOLIO YIELD AND TOTAL RETURN INFORMATION
The performance information shown below reflects deductions for all
charges, expenses and fees of the Fund but does not reflect charges and
deductions which are, or may be, imposed under the Contracts.
56
<PAGE>
Yield information may be useful to investors in reviewing the Fund's
performance. However, a number of factors should be considered before using
yield information as a basis for comparison with other investments. An
investment in any of the Portfolios of the Fund is not insured; its yield is not
guaranteed and normally will fluctuate on a daily basis. The yield for any
given past period is not an indication or representation by the Fund of future
yields or rates of return on its shares. The Fund's yield is affected by
portfolio quality, portfolio maturity, type of instruments held, and operating
expenses. When comparing a Portfolio's yield with that of other investments,
investors should understand that certain other investment alternatives such as
money market instruments or bank accounts provide fixed yields and also that
bank accounts may be insured.
57
<PAGE>
Yield for 30-day Period ended _____________, 1999 for
U.S. Government Income Portfolio of OCC Accumulation Trust
<TABLE>
<CAPTION>
Yield
<S> <C>
U.S. Government Income Portfolio ______%
</TABLE>
Current yield is calculated according to the following formula:
YIELD = 2(X/CD + 1)/6/ - 1
Where:
x = daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield does not reflect capital gains or losses, non-recurring or irregular
income. Gain or loss attributable to actual monthly paydowns on mortgage or
other receivables-backed obligations purchased at a discount or premium is
reflected as an increase or decrease in interest income during the period.
A Portfolio's average annual total return represents an annualization of
the Portfolio's total return ("T" in the formula below), over a particular
period and is computed by finding the current percentage rate which will result
in the ending redeemable value ("ERV" in the formula below) of a $1,000
investment, ("P" in the formula below) made at the beginning of a one, five or
ten year period, or for the period from the date of commencement of the
Portfolio's operation, if shorter ("N" in the formula below).
58
<PAGE>
The following formula will be used to compute the average annual total return
for each Portfolio (other than the Money Market Portfolio):
P (1 + T)/N/ = ERV
In addition to the foregoing, each Portfolio may advertise its total return
over different periods of
time by means of aggregate, average, year by year or other types of total return
figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
In addition to average annual returns, each Portfolio may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments and/or a series of redemptions over
any time period. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
59
<PAGE>
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indices including but not limited to the
S&P 500 Index, S&P Mid Cap Index, the Wilshire 750 Mid Cap Index, the Russell
Mid Cap Index, Dow Jones Industrial Average, Consumer Price Index, EAFE Index,
Russell 2000 Index, the Morgan Stanley Capital International (MSCI) World Index
and the Lehman Brothers US Government Bond Index and (3) Money Magazine and
other financial publications including but not limited to magazines, newspapers
and newsletters. Performance statistics may include total returns, measures of
volatility or other methods of portraying performance based on the method used
by the publishers of the information. In addition, comparisons may be made
between yields on certificates of deposit and U.S. government securities and
corporate bonds, and may refer to current or historic financial or economic
trends or conditions.
Average Annual Total Return of Equity, Mid Cap, Managed, Small Cap, U.S.
Government Income and Global Equity Portfolios of OCC Accumulation Trust/1,2/
<TABLE>
<CAPTION>
For the one year period For the five year period For the period from
ended ended inception to
Portfolio ___________, 1999 ____________, 1999 ___________, 1999*
- ---------
<S> <C> <C> <C>
Equity _____% _____% _____%
Mid Cap _____% _____% _____%
Managed _____% _____% _____%
Small Cap _____% _____% _____%
U.S. Government Income _____% N/A _____%
Global Equity _____% N/A _____%
</TABLE>
60
<PAGE>
/1/On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two investment
funds, the Old Trust and the Fund, at which time the Fund commenced operations.
The total net assets for each of the Equity, Small Cap and Managed Portfolios
immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274 and
$51,345,102, respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the performance
of the corresponding Portfolios of the Old Trust.
/2/Reflects waiver of all or a portion of the advisory fees and the
assumption of other expenses for certain Portfolios by the Manager. Without
such waivers and assumptions, the average annual total return during the periods
would have been lower.
*Inception date of the Global Equity Portfolio is March 1, 1995; the
inception date of the U.S. Government Income Portfolio is January 3, 1995; the
inception date of the Mid Cap Portfolio is February 9, 1998 and the inception
date of the Balanced Portfolio is May 1, 1999. The Equity, Managed and Small
Cap Portfolios commenced operations as part of the Fund on September 16, 1994.
The Old Trust commenced operations on August 1, 1988.
61
<PAGE>
ADDITIONAL INFORMATION
Description of the Trust. The Fund was formed under the laws of
Massachusetts as a business trust on May 12, 1994 under the name Quest for Value
Asset Builder Trust and is an open-end, diversified management investment
company. The name of the Fund was changed to Quest for Value Accumulation Trust
and then to OCC Accumulation Trust. It is not contemplated that share
certificates will be issued or regular annual meetings of the shareholders will
be held. The Fund will provide without charge to any shareholder, upon request
to the Secretary at the Fund's principal office, (a) a full statement of the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of beneficial interest of each series
which the Fund is authorized to issue, (b) the differences in the relative
rights and preferences between the shares of each series to the extent they have
been set, and (c) the authority of the Board of Trustees to set the reliable
rights and preferences of subsequent series. Shareholders have the right, upon
the declaration in writing or vote of a majority of the outstanding shares of
the Fund, to remove a Trustee. The Trustees will call a meeting of shareholders
to vote on the removal of a Trustee upon written request of the record holders
(for at least six months) of 10% of its outstanding shares. In addition, 10
shareholders holding the lesser of $25,000 or 1% of the Fund's outstanding
shares may advise the Trustees in writing that they wish to communicate with
other shareholders for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then either give the applicants access to the Fund's
shareholder list or mail the applicants' communication to all other shareholders
at the applicants' expense.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the Fund's obligations, and provides that the Fund shall indemnify
any shareholder who is held personally liable for the obligations of the Fund.
It also provides that the Fund shall assume, upon request, the defense of any
62
<PAGE>
claim made against any shareholder for any act or obligation of the Fund and
shall satisfy any judgment thereon.
Thus, while Massachusetts law permits a shareholder of a trust (such as the
Fund) to be held personally liable as a partner under certain circumstances, the
risk of a shareholder incurring any financial loss on account of shareholder
liability is limited to the relatively remote circumstance in which the Fund
itself would be unable to meet the obligations described above.
Possible Additional Portfolio Series. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses would be
allocated fairly among two or more Portfolios by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
independent accountants. The Rule contains special provisions for cases in
which an advisory agreement is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
Distribution Agreement. Under the Distribution Agreement between each
Portfolio and the Distributor, the Distributor acts as the Portfolio's agent in
the continuous public offering of its shares.
63
<PAGE>
Expenses normally attributed to sales, including advertising and the cost of
printing and mailing prospectuses other than those furnished to existing
shareholders, are borne by the Distributor.
Independent Accountants. PricewaterhouseCoopers LLP, 1177 Avenue of the
Americas, New York, New York 10036 serves as independent accountants of the
Fund; their services include auditing the annual financial statements of each
Portfolio as well as other related services.
64
<PAGE>
Item 23 Exhibits:
- ------- --------
(a)(1) Declaration of Trust - Previously filed with Post-Effective
Amendment No. 3.
(a)(2) Amendment to Declaration of Trust dated September 1, 1994 -
Previously filed with Post-Effective Amendment No. 3.
(a)(3) Amendment to Declaration of Trust dated September 16, 1994 -
Previously filed with Post-Effective Amendment No. 3.
(a)(4) Amendment to Declaration of Trust dated April 22, 1996 -
Previously filed with Post-Effective Amendment No. 2.
(b) By-Laws of Registrant - Previously filed with Post-Effective
Amendment No. 3.
(c) Articles VI, VIII, IX and X of the Declaration of Trust and
Article III of the Bylaws - Previously filed with Post-
Effective Amendment No. 10.
(d)(1) Investment Advisory Agreement with OpCap Advisors. -Previously
filed with Post-Effective Amendment No. 8.
(d)(2) Investment Sub-Advisory Agreement between PIMCO Equity
Advisors and OpCap Advisors - To be filed by Amendment.
(d)(3) Investment Sub-Advisory Agreement between PIMCO and OPCap
Advisors - To be filed by Amendment.
(e) Distribution Agreement. - Previously filed with Post-Effective
Amendment No. 8.
(f) Retirement Plan for Non-Interested Trustees or Directors. -
Previously filed with Post-Effective Amendment No. 9.
(g) Custody Agreement - Previously filed with Post-Effective
Amendment No. 3.
(h)(1) Participation Agreement for American Enterprise Life Insurance
Company- Previously filed with Post-Effective Amendment No. 3.
(h)(2) Amendment No. 1 to Participation Agreement for American
Enterprise Life Insurance Company. - Previously filed with
Post-Effective Amendment No. 8.
(h)(3) Participation Agreement for Connecticut General Life Insurance
Company and amendment dated August 30, 1996 - Previously filed
with Post-Effective Amendment No. 3.
C-1
<PAGE>
(h)(4) Participation Agreement for IL Annuity and Insurance Company-
Previously filed with Post-Effective Amendment No. 2.
(h)(5) Participation Agreement for Connecticut General Life Insurance
Company (Separate Account T3)-Previously filed with Post-
Effective Amendment No. 2.
(h)(6) Fund Participation Agreement for CIGNA Life Insurance Company
dated September 5, 1996 - Previously filed with Post-Effective
Amendment No. 3.
(h)(7) Amendment to Fund Participation Agreement for Connecticut
General Life Insurance Company dated 4/23/97 - Previously
filed with Post-Effective Amendment No. 5.
(h)(8) Participation Agreement for Providentmutual Life dated
9/16/94 - Previously filed with Post-Effective Amendment No.
4.
(h)(9) Participation Agreement for PRUCO Life Insurance Company of
Arizona dated 7/1/96 - Previously filed with Post-Effective
Amendment No. 4.
(h)(10) Participation Agreement for PRUCO Life Insurance Company of
New Jersey dated 1/1/97 - Previously filed with Post-Effective
Amendment No. 4.
(h)(11) Participation Agreement for Prudential Insurance Company of
America -Previously filed with Post-Effective Amendment No. 4.
(h)(12) Participation Agreement for MONY Life Insurance Company of
America and The Mutual Life Insurance Company of New York
dated as of September 16, 1994 - Previously filed with Post-
Effective Amendment No. 7.
(h)(13) Participation Agreement for ReliaStar Life Insurance Company
dated August 8, 1997 - Previously filed with Post-Effective
Amendment No. 7.
(h)(14) Participation Agreement for ReliaStar Bankers Security Life
Insurance Company dated August 8, 1997 - Previously filed with
Post-Effective Amendment No. 7.
(h)(15) Participation Agreement for Northern Life Insurance Company
dated August 8, 1997 - Previously filed with Post-Effective
Amendment No. 7.
(h)(16) Participation Agreement for American Centurion Life Insurance
Assurance Company - Previously filed with Post-Effective
Amendment No. 7.
C-2
<PAGE>
(h)(17) Participation Agreement for Sun Life Assurance Company of
Canada (U.S.) dated as of February 17, 1998 - Previously filed
with Post-Effective Amendment No. 8.
(h)(18) Participation Agreement for Transamerica Life Insurance
Company of New York dated December 15, 1997 - Previously filed
with Post-Effective Amendment No. 8.
(h)(19) Participation Agreement for Transamerica Occidental Life
Insurance Company dated December 15, 1997 - Previously filed
with Post-Effective Amendment No. 8.
(h)(20) Participation Agreement for Transamerica Life and Annuity
Company dated December 15, 1997 - Previously filed with Post-
Effective Amendment No. 8.
(h)(21) Amendment No. 2 dated August 21, 1998 to Participation
Agreement for American Enterprise Life Insurance Company,
dated February 21, 1995. - Previously filed with Post-
Effective Amendment No. 9.
(h)(22) Participation Agreement for Lincoln National Life Insurance,
dated May 15, 1998 and amendment thereto dated October 7,
1998. -Previously filed with Post-Effective Amendment No. 9.
(h)(23) Participation Agreement for First Providian Life and Health
Insurance Company, dated November 1, 1996. - Previously filed
with Post-Effective Amendment No. 9.
(h)(24) Participation Agreement for Providian Life and Health
Insurance Company, dated September 16, 1994. - Previously
filed with Post-Effective Amendment No. 9.
(h)(25) Amendment dated September 1, 1998 to Participation Agreement
of August 8, 1997 for ReliaStar Life Insurance Company of New
York (formerly ReliaStar Bankers Life Insurance Company). -
Previously filed with Post-Effective Amendment No. 9.
(h)(26) Amendment dated October 14, 1998 to Participation Agreement
dated September 17, 1997 for American Centurion Life Insurance
Company.- Previously filed with Post-Effective Amendment
No. 9.
(h)(27) Amendment dated December 1, 1998 to Participation Agreement of
February 17, 1998 for Sun Life Assurance Company of Canada
(U.S.). - Previously filed with Post-Effective Amendment
No. 9.
C-3
<PAGE>
(h)(28) Participation Agreement for Travelers Insurance Company dated
May 1, 1998. - Previously filed with Post-Effective Amendment
No. 9.
(h)(29) Amendment dated January 1, 1999 to Participation Agreement
with Transamerica Occidental Life Insurance Company. -
Previously filed with Post-Effective Amendment No. 10.
(h)(30) Amendment dated September 8, 1998 to Participation Agreement
with Transamerica Life Insurance and Annuity Company. -
Previously filed with Post-Effective Amendment No. 10.
(h)(31) Participation Agreement dated September 30, 1999 with Lincoln
Benefit Life Company
(i) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and non-assessable -
Previously filed with Post-Effective Amendment No. 3.
(j) Consent of Independent Accountants. - To be filed with Post
Effective Amendment No. 12.
(k) Not Applicable.
(l) Agreement relating to initial capital - Previously filed with
Post-Effective Amendment No. 3.
(m) Not Applicable.
(n) Not Applicable.
Item 24. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
No person is presently controlled by or under common control with the
Registrant.
Item 25. Indemnification
- -------- ---------------
Pursuant to Article V, Sec. 5.3 of the Registrant's Declaration
of Trust, the Trustees shall provide for indemnification by the Trust
of any present or former trustee, officer or agent in connection with
any claim, action, suit or proceeding in
C-4
<PAGE>
which he becomes involved as a party or otherwise by virtue of his
being, or having been, a trustee, officer or agent of the Trust. The
Trust By-Laws provide that, in other than derivative or shareholder
suits, trustees, officers and/or agents will be indemnified against
expenses of actions or omissions if the actions or omissions
complained of were in good faith and reasonably believed to be in and
not opposed to the best interests of the Trust, or, if a criminal
action, the accused had no cause to believe his conduct was unlawful.
In derivative and shareholder actions, such trustee, officer
and/or agent shall be indemnified against expenses except where
liability arises by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties as described in Section
17(h) and (i) of the Investment Company Act of 1940. Either Trustees
not a party to the action, shareholders or independent legal counsel
by written opinion may, in appropriate circumstances, decide questions
of indemnification under the By-Laws.
The Trust may purchase insurance insuring its officers and
trustees against certain liabilities in their capacity as such, and
insuring the Trust against any payments which it is obligated to make
to such persons under any foregoing indemnification provisions.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
See "Management of the Fund" in the Prospectus and "Investment
Management and Other Services" in the Additional Statement regarding
the business of the investment adviser. Set forth below is information
as to the business, profession, vocation or employment of a
substantial nature of each of the officers and directors of the
investment adviser.
C-5
<PAGE>
<TABLE>
<CAPTION>
Name & Current Position with OpCap Advisors Other Business and Connections During the Past Two
- ------------------------------------------- --------------------------------------------------
Years
-----
<S> <C>
Deborah Kaback, Secretary Senior Vice President and Deputy General Counsel of
Oppenheimer Capital; Secretary of OCC Distributors.
James McCaughan, President Chief Operating Officer of Oppenheimer Capital;
President of OCC Distributors; Director of
Oppenheimer Capital Trust Company.
Lawrence K. Becker, Treasurer and Chief Managing Director/Treasurer/Chief Financial Officer
Financial Officer of Oppenheimer Capital; Treasurer and Chief
Financial Officer of OCC Distributors.
</TABLE>
The address of OpCap Advisors is 1345 Avenue of the Americas, New York, New York
10105-4800.
Item 27. Principal Underwriter
- -------- ---------------------
(a) OCC Distributors acts as principal underwriter for the Registrant
and OCC Cash Reserves, Inc.
(b) Set forth below is certain information pertaining to the partners
and officers of OCC Distributors, Registrant's Principal
Underwriter; the Principal Business Address of each is 1345
Avenue of the Americas, New York, New York 10105-4800 except for
Value Advisors LLC whose Principal Business Address is: 800
Newport Center Drive, Newport Beach, CA 92660.
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Oppenheimer Capital General Partner None
Value Advisors LLC General Partner None
James McCaughan President None
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C> <C>
Frank Poli Principal None
Lawrence K. Becker Treasurer Treasurer
Deborah Kaback Secretary Secretary
</TABLE>
(c) Not applicable.
Item 28. Location of Required Records -- Rule 31a-1
- -------- ---------------------------- ----------
(Except those maintained by Custodian and Transfer Agent)
OpCap Advisors
1345 Avenue of the Americas
New York, NY 10105-4800
Item 29. Management Services
- -------- -------------------
Not Applicable.
Item 30. Undertakings
- -------- ------------
Not applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
City of New York, and State of New York on the 18th day of November, 1999.
OCC Accumulation Trust
/s/ Joseph M. La Motta
-----------------------------
Joseph M. La Motta, President
Attest:
/s/ Deborah Kaback
- -------------------------
Deborah Kaback, Secretary
Pursuant to the requirements of the Securities Act of 1933 this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
OCC Accumulation Trust
<TABLE>
<CAPTION>
Date
----
<S> <C>
/s/ Joseph M. La Motta November 16, 1999
- ----------------------------------------
Joseph M. La Motta, President, Trustee
/s/ Paul Y. Clinton November 16, 1999
- ----------------------------------------
Paul Y. Clinton, Trustee
/s/ Thomas W. Courtney November 16, 1999
- ----------------------------------------
Thomas W. Courtney, Trustee
/s/ Lacy B. Herrmann November 16, 1999
- ----------------------------------------
Lacy B. Herrmann, Trustee
/s/ George Loft November 16, 1999
- ----------------------------------------
George Loft, Trustee
/s/ Deborah Kaback November 16, 1999
- ----------------------------------------
Deborah Kaback, Secretary
/s/ Lawrence Becker November 16, 1999
- ----------------------------------------
Lawrence Becker, Treasurer
</TABLE>
<PAGE>
OCC Accumulation Trust
INDEX TO EXHIBITS
Exhibit No.
- -----------
(h) (31) Participation Agreement with Lincoln Benefit Life
Company.
<PAGE>
EXHIBIT 99(H)(31)
PARTICIPATION AGREEMENT
-----------------------
By and Among
OCC ACCUMULATION TRUST
----------------------
And
LINCOLN BENEFIT LIFE COMPANY
----------------------------
And
OCC DISTRIBUTORS
----------------
THIS AGREEMENT, made and entered into this 30th day of September 1999
by and among Lincoln Benefit Life Company, a Nebraska Corporation (hereinafter
the "Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement, as may be amended from time to
time (each account referred to as the "Account"), OCC ACCUMULATION TRUST, an
open-end diversified management investment company organized under the laws of
the State of Massachusetts (hereinafter the "Fund") and OCC DISTRIBUTORS, a
Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and qualified
pension and retirement plans (hereinafter the "Mixed and Shared Funding
Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of Nebraska, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
2
<PAGE>
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund. For
purposes of this Section 1.1, the Company shall be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern Time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC.
3
<PAGE>
1.2. The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement are in
effect to govern such sales. The Fund shall make available upon written request
from the Company (i) a list of all other Participating
4
<PAGE>
Insurance Companies and (ii) a copy of the Participation Agreement executed by
any other Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption proceeds, but in
no event may such payment be delayed longer than the period permitted under
Section 22(e) of the 1940 Act. Neither the Fund nor the Underwriter shall bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) the Company
5
<PAGE>
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (b) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement; or (c)
the Fund or Underwriter consents in writing to the use of such other investment
company.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this election
and to receive all such dividends and distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. In the event that net asset values are not made
available to the Company by such time, the Company agrees to use its best
efforts to include the net asset value when received in its next business cycle
for purposes of calculating
6
<PAGE>
purchase orders and request for redemption. However, if net asset values are not
available for inclusion in the next business cycle and purchase
orders/redemptions are not able to be calculated and available for the Company
to execute within the time-frame identified in Section 11 the Fund shall
reimburse and make the Company whole for any losses incurred as a result of such
delays.
1.11. The Fund will provide notice of any error in calculation of net
asset value of each portfolio as soon as reasonably practical after discovery
thereof. Any such notice will state for each day for which an error occurred,
the incorrect price and the reason for the price change. The Fund shall make the
Company whole for any payments or adjustments to the number of shares in the
Separate Accounts that are demonstrated to be required as a result of pricing
errors.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The
7
<PAGE>
Company shall register and qualify the Contracts for sale in accordance with the
securities laws of the various states only if and to the extent deemed necessary
by the Company.
2.2. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts under
applicable provisions of the Internal Revenue Code and that it will make every
effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code,
and that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes
8
<PAGE>
no representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) complies with the
insurance laws and regulations of any state. The Company alone shall be
responsible for informing the Fund of any insurance restrictions imposed by
state insurance laws which are applicable to the Fund. To the extent feasible
and consistent with market conditions, the Fund will adjust its investments to
comply with the aforementioned state insurance laws upon written notice from the
Company of such requirements and proposed adjustments, it being agreed and
understood that in any such case the Fund shall be allowed a reasonable period
of time under the circumstances after receipt of such notice to make any such
adjustment.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
9
<PAGE>
2.9. The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisors, is and shall remain duly registered under all applicable federal
and state securities laws and that the Adviser will perform its obligations to
the Fund in accordance with the laws of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request
10
<PAGE>
for use with prospective contractowners and applicants. The Underwriter shall
print and distribute, at the Fund's or Underwriter's expense, as many copies of
said prospectus as necessary for distribution to existing contractowners or
participants. If requested by the Company in lieu thereof, the Fund shall
provide such documentation including a final copy of a current prospectus set in
type at the Fund's expense and other assistance as is reasonably necessary in
order for the Company at least annually (or more frequently if the Fund
prospectus is amended more frequently) to have the new prospectus for the
Contracts and the Fund's new prospectus printed together in one document. In
such case the Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the Underwriter
(or the Fund) shall provide such Statement, at its expense, to the Company and
to any owner of or participant under a Contract who requests such Statement or,
at the Company's expense, to any prospective contractowner and applicant who
requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, if any, reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require and
shall bear the costs of distributing them to existing contractowners or
participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or
participants; and
11
<PAGE>
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as
Fund shares of such Portfolio for which instructions have
been received from the Company's contractowners or
participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least five business days prior to its use. No such material shall be used if the
Fund or the Underwriter reasonably objects in writing to such use within five
business days after receipt of such material.
12
<PAGE>
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least five business days prior to its use. No such material shall be
used if the Company reasonably objects in writing to such use within five
business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
13
<PAGE>
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
---
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
14
<PAGE>
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then, subject to obtaining any required exemptive orders
or other regulatory approvals, the Underwriter may make payments to the Company
or to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required by any
federal or state law, all taxes on the issuance or transfer of the Fund's
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue
15
<PAGE>
Code and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund will comply with Section 817(h) of the Internal Revenue Code
and Treasury Regulation 1.817-5, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and any amendments
or other modifications to such Section or Regulations in accordance with
guidelines provided by the Company prior to the execution of this Agreement and
as necessary thereafter. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance with the
grace period afforded by Treasury Regulation 1.817-5. The Fund shall provide the
Company information reasonably requested in relation to Section 817(h)
diversification requirements, including quarterly reports and annual
certifications in the form attached hereto as Schedule 3.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to
16
<PAGE>
disregard the voting instructions of contractowners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof. A majority of the Fund Board shall consist
of persons who are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist the Fund
Board in carrying out its responsibilities under the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are disregarded. The Fund Board
shall record in its minutes or other appropriate records, all reports received
by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected contractowners and, as appropriate, segregating the assets
17
<PAGE>
of any appropriate group (i.e., variable annuity contractowners or variable life
----
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to such
Account. Any such withdrawal and termination must take place within 60 days
after the Fund gives written notice to the Company that this provision is being
implemented. Until the end of such 60 day period the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or Quest
18
<PAGE>
Advisors be required to establish a new funding medium for the Contracts. The
Company shall not be required by Section 7.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of contractowners materially adversely affected by the irreconcilable material
conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials and
data shall be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
19
<PAGE>
(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, and each of the Fund's or the Underwriter's directors, officers,
employees or agents and each person, if any, who controls or is associated with
the Fund or the Underwriter within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including reasonable legal and other expenses), to which the
indemnified parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Contracts or contained in the
Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration
statement, Fund prospectus, Fund statement of additional
information or sales literature or other promotional
material of the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
20
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, Fund prospectus, statement of
additional information or sales literature or other
promotional material of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the
Fund by or on behalf of the Company or persons under its
control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach by
the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification By the Underwriter
----------------------------------
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Company within the
21
<PAGE>
meaning of such terms under the federal securities laws (collectively, the
"indemnified parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including reasonable
legal and other expenses) to which the indemnified parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Fund or sales literature or
other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made;
provided that this agreement to indemnify shall not apply
as to any indemnified party if such statement or omission
or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use
in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature
or other promotional material of the Fund (or any amendment
or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Contracts or in the Contract or Fund
registration statement, the Contract or Fund prospectus,
statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund
not supplied by the Underwriter or the Fund or persons
under the control of the Underwriter or the Fund
respectively) or wrongful conduct of the Underwriter or the
Fund or persons under the control of the Underwriter or
the Fund respectively, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or sales literature or other promotional material covering
the Contracts (or any amendment
22
<PAGE>
thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statement or statements therein not misleading in light
of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by
or on behalf of the Underwriter or the Fund or persons
under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements and procedures
related thereto specified in Article VI of this
Agreement except if such failure is a result of the
Company's failure to comply with the notification
procedures specified in Article VI); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
or the Fund in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. Indemnification Procedure
-------------------------
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.3) shall not be liable
under the
23
<PAGE>
indemnification provisions of this Article VIII with respect to any claim made
against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The
24
<PAGE>
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, which shall not be unreasonably withheld,
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. Contribution
------------
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Article VIII is due in accordance
with its terms but for any reason is held to be unenforceable with respect to a
party entitled to indemnification ("indemnified party" for purposes of this
Section 8.4) pursuant to the terms of this Article VIII, then each party
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and litigations in such proportion
as is appropriate to reflect the relative benefits received by the parties to
this Agreement in connection with the offering of Fund shares to the Account and
the acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
25
<PAGE>
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to the Mixed and Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written notice to
the other parties unless otherwise agreed in a separate written agreement among
the parties; or
(b) at the option of the Company if shares of the Portfolios delineated
in Schedule 2 are not reasonably available to meet the requirements of the
Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any state
or any other regulatory body regarding the Company's duties under this Agreement
or related to the sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund shares, which would
have a material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
26
<PAGE>
(d) at the option of the Company upon institution of formal proceedings
against the Fund or the Underwriter by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, which would
have a material adverse effect on the Fund's or the Underwriter's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will give
30 days prior written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
27
<PAGE>
(i) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
(l) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
------------------
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating the Agreement to
28
<PAGE>
the non-terminating parties, with said termination to be effective upon receipt
of such notice by the non-terminating parties.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the non-
terminating parties at least 30 days before the effective date of termination.
10.3. It is understood and agreed that the right to terminate this Agreement
pursuant to Section 10.1(a) may be exercised for any reason or for no reason.
10.4. Effect of Termination
---------------------
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in
29
<PAGE>
effect except for Section 10.1(a) and thereafter the Fund, the Underwriter, or
the Company may terminate the Agreement, as so continued pursuant to this
Section 10.4, upon written notice to the other party, such notice to be for a
period that is reasonable under the circumstances but, if given by the Fund or
Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or approved
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account), and the
Company shall not prevent contractowners from allocating payments to a Portfolio
that was otherwise available under the Contracts, until 90 days after the
Company shall have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. Notices
-------
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
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If to the Fund:
Deborah Kaback, Esq.
Secretary
OpCap Advisors
1345 Avenue of the Americas, 50/th/ Flr.
New York, NY 10105-4800
If to the Company:
Gregory C. Sernett
Vice President & Assistant General Counsel
Lincoln Benefit Life Company
206 South 13/th/ Street, Suite 100
Lincoln, NE 68508
If to the Underwriter:
Deborah Kaback, Esq.
Secretary
OCC Distributors
1345 Avenue of the Americas, 50/th/ Flr.
New York, NY 10105-4800
ARTICLE XII. Miscellaneous
-------------
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Directors, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall treat
as confidential all information reasonably identified as such in writing by any
other party hereto (including without limitation the names and addresses of the
owners of the Contracts) and, except as contemplated by this Agreement, shall
not disclose, disseminate or utilize such confidential in-
31
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formation until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or trust action, as applicable, by such
party and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
32
<PAGE>
12.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Portfolios of the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative as of the
date and year first written above.
Company:
--------
LINCOLN BENEFIT LIFE COMPANY
SEAL By: ______________________________
Fund:
-----
OCC ACCUMULATION TRUST
SEAL By: ______________________________
Underwriter:
------------
OCC DISTRIBUTORS
By: ______________________________
33
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Schedule 1
Participation Agreement
Among
OCC Accumulation Trust, Lincoln Benefit Life Company
and
OCC Distributors
The following separate accounts of Lincoln Benefit Life Company are permitted
in accordance with the provisions of this Agreement to invest in Portfolios of
the Fund shown in Schedule 2:
Lincoln Benefit Life Variable Annuity Account
September 30, 1999
<PAGE>
Schedule 2
Participation Agreement
Among
OCC Accumulation Trust, Lincoln Benefit Life Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Equity and Small Cap
September 30, 1999
