OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Equity Portfolio
Mid Cap Portfolio
Small Cap 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. Anyone who tells you otherwise is committing a crime.
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TABLE OF CONTENTS
Page
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Risk/Return Summary ....................................................... 2
Principal Investment Strategies ........................................... 8
Risks ..................................................................... 13
Investment Policies ....................................................... 15
Fund Management ........................................................... 16
Share Price ............................................................... 19
Distributions and Taxes ................................................... 19
Year 2000 ................................................................. 19
Financial Highlights ...................................................... 20
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RISK/RETURN SUMMARY
Investment Goals Equity Portfolio ............ Long term capital appreciation
Mid Cap Portfolio ........... Long term capital appreciation
Small Cap 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 o The Equity Portfolio invests primarily in equity
securities listed on the New York Stock Exchange.
o The Mid Cap Portfolio invests primarily in equity
securities of companies with market
capitalizations between $500 million and $5
billion.
o The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
o The Global Equity Portfolio invests primarily in
equity securities on a worldwide basis and may
invest up to a lesser extent in U.S. or foreign
fixed income securities.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
o The Balanced Portfolio invests in common stocks,
preferred stocks, securities convertible into
common stock and debt securities.
o 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.
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Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
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.
Principal Risks You could lose money on your investment in the Equity
Portfolio, Mid Cap Portfolio, Small Cap Portfolio,
Global Equity Portfolio, Managed Portfolio or the
Balanced Portfolio or these Portfolios could
underperform other investments if any of the following
happens:
o The stock market goes down.
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o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the U.S.
Government Income Portfolio or the Managed, Balanced or
the Global Equity Portfolios (to the extent that the
Managed, Balanced or the Global Equity Portfolios hold
fixed income securities) or those Portfolios could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would 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 Mid Cap Portfolio because it commenced operations on
February 9, 1998 and does 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 is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
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Equity Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 22.67%
1990 (2.22)%
1991 31.22%
1992 17.90%
1993 7.85%
1994 3.81%
1995 38.85%
1996 23.36%
1997 26.63%
1998 11.86%
During the period from the inception of the Equity Portfolio through December
31, 1998, the highest quarterly return was 14.17% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.32)% (for the quarter ended
September 30, 1990).
Small Cap Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 18.35%
1990 (9.76)%
1991 48.12%
1992 21.49%
1993 19.51%
1994 (1.01)%
1995 15.23%
1996 18.72%
1997 22.24%
1998 (9.03)%
During the period from the inception of the Small Cap Portfolio through December
31, 1998, the highest quarterly return was 19.20% (for the quarter ended March
31, 1991) and the lowest quarterly return was (17.26)% (for the quarter ended
September 30, 1998).
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Global Equity
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1996 15.02%
1997 14.02%
1998 13.29%
During the period from the inception of the Global Equity Portfolio through
December 31, 1998, the highest quarterly return was 14.89% (for the quarter
ended December 31, 1998) and the lowest quarterly return was (15.04)% (for the
quarter ended September 30, 1998).
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
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U.S. Government Income Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1996 3.02%
1997 7.04%
1998 8.15%
During the period from the inception of the U.S. Government Income Portfolio
through December 31, 1998, the highest quarterly return was 4.68% (for the
quarter ended September 30, 1998) and the lowest quarterly return was (.80)%
(for the quarter ended March 31, 1996).
*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 aggregate return for the life of
the Mid Cap Portfolio compares 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
Balanced Portfolio is a new portfolio and does not have a track record yet.
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Average Annual Total Returns for the periods ended December 31, 1998
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Past Year Past 5 Years Since Inception
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Equity Portfolio 11.86% 20.28% 17.00%
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Managed Portfolio 7.12% 19.15% 18.99%
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S&P 500 Index 28.58% 24.05% 18.79%
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Small Cap Portfolio (9.03)% 8.53% 12.85%
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Russell 2000 (2.55)% 11.86% 12.30%
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Mid Cap Portfolio N/A N/A (1.62)%
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Wilshire 750 Mid Cap Index N/A N/A 1.28%
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Global Equity Portfolio 13.29% N/A 15.96%
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MSCI World Index 24.34% N/A 19.37%
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U.S. Government Income Portfolio 8.15% N/A 7.78%
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Lehman Intermediate Government
Bond Index 8.49% N/A 8.60%
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U.S. Government Income Portfolio Yield for the 30-day period
ended December 31, 1998
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4.58%
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PRINCIPAL INVESTMENT STRATEGIES
Equity Portfolio
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. When we
use the term "equity securities," we mean common and preferred stocks,
convertible debt, warrants and equity options. 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select companies that
it believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o high returns on capital
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
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A Common stocks 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.
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. When we use the
term "equity securities," we mean common and preferred stocks, convertible
debt, warrants and equity options. 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.
Q How does OpCap Advisors select stocks for the Portfolio?
A OpCap Advisors uses fundamental company analysis to find companies that it
believes have one or more of the following:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o high returns on capital
o favorable price to intrinsic value relationship.
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 value creation for mid cap companies
could result from regional or product line expansion or sale of the
company.
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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.
When we use the term "equity securities," we mean common and preferred
stocks, convertible debt, warrants and equity options. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o high returns on capital
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
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 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, the stock can be revalued more
efficiently.
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.
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Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies located
anywhere in the world. The Portfolio may invest up to 35% of its total
assets in fixed income securities which may be lower than investment
grade.
Q How does OpCap Advisors select stocks for the Portfolio?
A OpCap Advisors uses fundamental company analysis to find companies that it
believes have one or more of the following:
o valuable consumer or commercial franchises
o strong shareholder-oriented management
o substantial and growing discretionary cash flow
o favorable price to intrinsic value relationship.
Q What are the potential rewards of investing in the Portfolio?
A U.S. stocks represent less than half of the world's stock market
capitalization. Foreign securities provide additional opportunities and
diversification.
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' 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 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
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o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
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. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors seeks to achieve the Portfolio's objective of growth of
capital and investment income by purchasing:
Equity securities that it believes are undervalued and have one or
more of the following characteristics.
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Convertible securities that have the potential for investment income
prior to conversion and capital growth.
Debt securities that offer investment income and the potential for
capital appreciation if interest rates decline or the issuer's
credit improves.
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Q What are the potential rewards of investing in the Portfolio?
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.'
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors observes current and historical yield relationships between
maturities and sectors to seek the best relative values. The Portfolio
maintains an average maturity between five and ten years. The Portfolio
invests principally in U.S. treasury and U.S. Government agency
securities. The Portfolio invests in mortgage backed securities during
periods of stable interest rates. 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, Mid Cap, Small Cap, Global Equity, Managed and Balanced
Portfolios invest principally in equity securities which may be affected
by the following:
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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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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 - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad 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,
OpCap Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign
currencies will be affected by changes in the value of that
currency.
o Liquidity - Some foreign markets are less liquid and more
volatile than the U.S. stock market.
o Limited information - There may be less public information
about foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not
yet been determined.
o Emerging Markets - There are greater risks of unstable
governments and economics 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.
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To the extent that the Managed, Global Equity, Balanced and U.S.
Government Income Portfolios invest in debt securities, the Portfolios are
exposed to these risks:
o Interest rate risk - The risk that changes in interest rates
will affect the value of fixed income securities in the
Portfolio.
o Prepayment risk - The risk that the holder of a mortgage
underlying a mortgage backed security will prepay principal.
o 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:
o more volatility
o less liquidity
o 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 The Equity, Mid Cap, Small Cap, Global Equity, Managed and Balanced
Portfolios have the authority to use the following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
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Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are
not correlated with its other investments.
o 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 Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their 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
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Equity Portfolio ..................... .80%
Mid Cap Portfolio .................... .00%
Small Cap Portfolio .................. .80%
Global Equity Portfolio .............. .80%
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Managed Portfolio .................... .78%
U.S. Government Income Portfolio ..... .40%
OpCap Advisors waived all of its fees from the Mid Cap Portfolio for the
period February 9, 1998 (commencement of operations) to December 31, 1998 and
waived a portion of its fees from the U.S. Government Income Portfolio for the
fiscal year ended December 31, 1998.
Portfolio Managers
[PHOTO OMITTED]
Eileen Rominger, Managing Director of Oppenheimer Capital, has managed the
Equity Portfolio from its inception. She has worked with us as an analyst and
portfolio manager since 1981. She holds a BA Cum Laude from Fairfield University
and a MBA in Finance from the Wharton Graduate School of Business.
[PHOTO OMITTED]
Louis Goldstein has been the portfolio manager of the Mid Cap Portfolio since
its inception. Louis Goldstein is a Senior Vice President of Oppenheimer
Capital. He joined us in 1991. He earned a BS Summa Cum Laude and a MBA in
Finance with honors from the Wharton School of Business.
[PHOTO OMITTED]
[PHOTO OMITTED]
Timothy McCormack has been a portfolio manager of the Small Cap Portfolio since
May 1996. Mr. McCormack, Senior Vice President of Oppenheimer Capital, joined us
in 1994. Before that, 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 of the Small Cap Portfolio since February 1999, 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. and
previously, a Special Situations Analyst at Argus Research Corp for over three
years. He has a BS degree in marketing from the University of Scranton.
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[PHOTO OMITTED]
James Sheldon became portfolio manager of the foreign portion of the Global
Equity Portfolio 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 us in February 1998 as a
Senior Vice President. Before joining us, 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 us in 1991. He has a BA
from Kenyan College and a MBA from the Harvard School of Business
Administration.
[PHOTO OMITTED]
Richard Glasebrook has been the portfolio manager of the Managed Portfolio since
its inception.
[PHOTO OMITTED]
Colin Glinsman, Chief Investment Officer and Managing Director of Oppenheimer
Capital, is 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.
[PHOTO OMITTED]
Vikki Hanges, Senior Vice President of Oppenheimer Capital, has been the
sportfolio manager of the U.S. Government Income Portfolio since its inception.
She joined us in 1982. Ms. Hanges has a BS from Cornell University.
18
<PAGE>
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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 computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
19
<PAGE>
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
20
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to 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 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
Dividends to shareholders from
net investment income ........................ 0.39 (0.28) (0.24) (0.09) --
Distributions to shareholders 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) ................................ 11.9% 26.6% 23.4% 38.9% (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 (5) .................... 0.94%(4) 0.99% 0.93%(6) 0.72%(6) 0.72%(3,6)
------- ------- ------- ------- ----------------------
Ratio of net investment income
to average net assets ........................ 1.36%(4) 1.25% 1.29%(6) 1.74%(6) 1.80%(3,6)
------- ------- ------- ------- ----------------------
Portfolio turnover rate ......................... 29% 32% 36% 31% 6%
------- ------- ------- ------- ----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $36,402,283.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.05% and 1.15%,
respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
21
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period:
February 9, 1998 (1)
to
December 31, 1998
--------------------
Net asset value, beginning of period ..................... $ 10.00
----------
Income 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 and distributions to shareholders
Dividends to shareholders from
net investment income ............................... (0.05)
Distributions to shareholders from
net realized gains .................................. --
----------
Total dividends and distributions to shareholders ........ (0.05)
----------
Net asset value, end of period ........................... $ 9.79
==========
Total return (2) ......................................... (1.6%)
==========
Net assets, end of period ................................ $1,885,024
----------
Ratio of net operating expenses
to average net assets (3,4,5,6) ..................... 1.05%
----------
Ratio of net investment income
to average net assets (3,4,6) ....................... 0.78%
----------
Portfolio turnover rate .................................. 38%
----------
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown.
(3) Annualized
(4) Average net assets for the period February 9, 1998 (commencement of
operations) to December 31, 1998 were $1,325,812.
(5) Ratios are calculated to include expenses offset by earnings credits from
a custodian bank (See note 1G in Notes to Financial Statements).
(6) During the 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.
22
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 26.37 $ 22.61 $ 19.91 $ 17.38 $ 17.49
-------- -------- -------- -------- ----------------------
Income 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
Dividends to shareholders from
net investment income ...................... (0.09) (0.13) (0.25) (0.05) --
Distributions to shareholders from
net realized gains ......................... (0.94) (0.92) (0.64) (0.05) --
-------- -------- -------- -------- ----------------------
Total dividends and distributions to shareholders (1.03) (1.05) (0.89) (0.10) --
-------- -------- -------- -------- ----------------------
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 (5) .................. 0.88%(4) 0.97% 0.93%(6) 0.74% 0.74%(3,6)
-------- -------- -------- -------- ----------------------
Ratio of net investment income
to average net assets ...................... 0.72%(4) 0.64% 1.03%(6) 1.75% 1.22%(3,6)
-------- -------- -------- -------- ----------------------
Portfolio turnover rate ......................... 51% 68% 50% 69% 32%
-------- -------- -------- -------- ----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $136,219,417.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
23
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------- March 1, 1995 (1) to
1998 1997 1996 December 31, 1995
------- ------- ------- --------------------
<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
Dividends to shareholders from net investment income ..... (0.18) (0.04) (0.05) (0.03)
Distributions to shareholders in excess of
net investment income ............................... -- (0.03) -- --
Distributions to shareholders from net realized gains .... (0.61) (0.69) (0.07) (0.24)
------- ------- ------- --------------------
Total dividends and distributions to shareholders ... (0.79) (0.76) (0.12) (0.27)
------- ------- ------- --------------------
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 (5) 1.13% (4) 1.19% (6) 1.42% (6) 1.25% (3,6)
------- ------- ------- --------------------
Ratio of net investment income to average net assets ..... 0.79% (4) 0.45% (6) 0.81% (6) 1.02% (3,6)
------- ------- ------- --------------------
Portfolio turnover rate .................................. 55% 53% 40% 67%
------- ------- ------- --------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $30,893,014.
(5) The ratios are calculated to include to expenses offset by earnings
credits from a Financial custodian bank (See note 1H in Notes Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.20% and 0.44%,
respectively, for the year ended December 31, 1997, and 1.83% and 0.22%,
respectively, for the year ended December 31, 1996 and 3.94% and (1.67%),
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
24
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- -------- ----------------------
Income 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
Dividends to shareholders from
net investment income .......................... (0 33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) ...................... 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66%(3,6)
-------- -------- -------- -------- ----------------------
Ratio of net investment income
to average net assets .......................... 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34%(3,6)
-------- -------- -------- -------- ----------------------
Portfolio turnover rate ........................... 37% 32% 27% 22% 8%
-------- -------- -------- -------- ----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net portion
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.
25
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------- January 3, 1995 (1)
1998 1997 1996 December 31, 1995
------- ------- ------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.51 $ 10.38 $ 10.62 $ 10.00
------- ------- ------- -------------------
Income 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
Dividends to shareholders from net investment income (0.53) (0.57) (0.55) (0.60)
Distributions to shareholders 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 (5,6) 1.00%(4) 0.93% 0.96% 0.75%(3)
------- ------- ------- -------------------
Ratio of net investment income to average net assets (6) 4.96%(4) 5.51% 5.27% 5.75%(3)
------- ------- ------- -------------------
Portfolio turnover rate 80% 80% 31% 65%
------- ------- ------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencements of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $8,295,571.
(5) The ratios are calculated to include expenses offset by earnings credits
from a custodian bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.19% and 4.77%,
respectively, for the year ended December 31, 1998, 1.06% and 5.37%,
respectively, for the year ended December 31, 1997, 2.34% and 3.87%,
respectively, for the year ended December 31, 1996, and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
26
<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.
OCC Accumulation Trust
Equity Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
(Investment Company Act file no. 811-8512)
27
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Small Cap Portfolio
Managed 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ..................................................... 2
Principal Investment Strategies ......................................... 5
Risks ................................................................... 7
Investment Policies ..................................................... 8
Fund Management ......................................................... 9
Share Price ............................................................. 11
Distributions and Taxes ................................................. 11
Year 2000 ............................................................... 11
Financial Highlights .................................................... 12
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Small Cap Portfolio...........Capital appreciation
Managed Portfolio.............Growth of capital over time
Principal Investment
Strategies o The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
2
<PAGE>
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.
Principal Risks You could lose money on your investment in the Small Cap
Portfolio or Managed Portfolio or these Portfolios could
underperform other investments if any of the following
happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the Managed
Portfolio (to the extent that the Managed Portfolio
holds fixed income securities) or the Portfolio could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would have to reinvest these
prepayments at lower rates.
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.
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the future.
The Portfolios'
3
<PAGE>
performance is not the performance at the separate
account level and does not reflect charges and
deductions which are imposed under the variable
contracts.
Small Cap Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 18.35%
1990 (9.76)%
1991 48.12%
1992 21.49%
1993 19.51%
1994 (1.01)%
1995 15.23%
1996 18.72%
1997 22.24%
1998 (9.03%)
During the period from the inception of the Small Cap Portfolio through December
31, 1998, the highest quarterly return was 19.20% (for the quarter ended March
31, 1991) and the lowest quarterly return was (17.26)% (for the quarter ended
September 30, 1998).
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
*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 Small Cap and Managed Portfolios
immediately after the transaction were $139,812,573 and $682,601,380,
respectively, with respect to the Old Trust and for each of the Small Cap and
Managed Portfolios, $8,129,274 and $51,345,102, respectively, with respect to
the Fund. For the period prior to
4
<PAGE>
September 16, 1994, the performance figures above for each of the 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 Managed Portfolio compare to that of the Standard & Poor's
composite Index of 500 Stocks and how the average annual returns for the Small
Cap Portfolio compare to the Russell 2000. 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.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
Small Cap Portfolio (9.03)% 8.53% 12.85%
- --------------------------------------------------------------------------------
Russell 2000 (2.55)% 11.86% 12.30%
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
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.
When we use the term "equity securities," we mean common and preferred
stocks, convertible debt, warrants and equity options. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o high returns on capital
o strong shareholder value-oriented management
5
<PAGE>
o valuable consumer or commercial franchises
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 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, the stock can be revalued more
efficiently.
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' 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 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
6
<PAGE>
RISKS
Q What are the risks of investing in the Portfolios?
A The Small Cap and Managed 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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 - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity
and fixed income securities. The portfolio manager of the Portfolio can
make the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios,
OpCap Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign
currencies will be affected by changes in the value of that
currency.
o Liquidity - Some foreign markets are less liquid and more
volatile than the U.S. stock market.
o Limited information - There may be less public information
about foreign issuers than there is about U.S. issuers.
o Settlement and Clearance - Some foreign markets experience
delays in settlement. These delays could cause the Portfolio
to miss investment opportunities or to be
7
<PAGE>
unable to sell a security.
o Euro - The effect of the Euro on international markets has not
yet been determined.
o Emerging Markets - There are greater risks of unstable
governments and economics 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 Managed Portfolio invests in debt securities, the
Portfolio is exposed to these risks:
o Interest rate risk - The risk that changes in interest rates
will affect the value of fixed income securities in the
Portfolio.
o Prepayment risk - The risk that the holder of a mortgage
underlying a mortgage backed security will prepay principal.
o 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.
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 The Small Cap and Managed Portfolios have the authority to use the
following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
8
<PAGE>
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are
not correlated with its other investments.
o 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 Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their 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
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Small Cap Portfolio ............. .80%
Managed Portfolio ............... .78%
9
<PAGE>
Portfolio Managers
[PHOTO OMITTED]
[PHOTO OMITTED]
Timothy McCormack has been a portfolio manager of the Small Cap Portfolio since
May 1996. Mr. McCormack, Senior Vice President of Oppenheimer Capital, joined us
in 1994. Before that, 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 of the Small Cap Portfolio since February 1999, 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. and
previously, a Special Situations Analyst at Argus Research Corp for over three
years. He has a BS degree in marketing from the University of Scranton.
[PHOTO OMITTED]
Richard Glasebrook, who is a Managing Director of Oppenheimer Capital, has been
the portfolio manager of the Managed Portfolio since its inception. He joined us
in 1991. He has a BA from Kenyan College and a MBA from the Harvard School of
Business Administration.
10
<PAGE>
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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.
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
11
<PAGE>
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 investment in a
Portfolio (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which available upon request.
12
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................ $ 26.37 $ 22.61 $ 19.91 $ 17.38 $ 17.49
-------- -------- -------- -------- --------
Income 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
Dividends to shareholders from
net investment income ............................ (0.09) (0.13) (0.25) (0.05) --
Distributions to shareholders from
net realized gains ............................... (0.94) (0.92) (0.64) (0.05) --
-------- -------- -------- -------- --------
Total dividends and distributions to shareholders (1.03) (1.05) (0.89) (0.10) --
-------- -------- -------- -------- --------
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 (5) ........................ 0.88%(4) 0.97% 0.93%(6) 0.74%(6) 0.74%(3,6)
-------- -------- -------- -------- --------
Ratio of net investment income
to average net assets ............................ 0.72%(4) 0.64% 1.03%(6) 1.75%(6) 1.22%(3,6)
-------- -------- -------- -------- --------
Portfolio turnover rate ............................. 51% 68% 50% 69% 32%
-------- -------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $136,219,417.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
13
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- -------- --------
Income 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
Dividends to shareholders from
net investment income (0.33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66%(3,6)
-------- -------- -------- -------- --------
Ratio of net investment income
to average net assets 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34%(3,6)
-------- -------- -------- -------- --------
Portfolio turnover rate 37% 32% 27% 22% 8%
-------- -------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the
year ended December 31, 1996, 0.74% and 1.77%, respectively, for the year
ended December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
14
<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.
OCC Accumulation Trust
Small Cap Portfolio
Managed Portfolio
(Investment Company Act file no. 811-8512)
15
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company that includes the
following investment portfolio.
Equity 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ........................................................ 2
Principal Investment Strategies ............................................ 4
Risks ...................................................................... 5
Investment Policies ........................................................ 6
Fund Management ............................................................ 7
Share Price ................................................................ 8
Distributions and Taxes .................................................... 8
Year 2000 .................................................................. 9
Financial Highlights ....................................................... 9
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Equity Portfolio ............Long term capital appreciation
Principal Investment
Strategies o The Equity Portfolio invests primarily in equity
securities listed on the New York Stock Exchange.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
Principal Risks You could lose money on your investment in the Equity
Portfolio or the Portfolio could underperform other
investments if any of the following happens:
2
<PAGE>
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolio for longer than expected.
o The stocks purchased by the Portfolio turn out not
to be undervalued
o Foreign securities which generally are more
volatile than U.S. securities decline in volume
more steeply or become less liquid than expected.
Bar Chart and
Performance Table The bar charts provide some indication of the
risks of investing in the Portfolio by showing changes
in the performance of the Portfolio's shares from year
to year for the life of the Portfolio and the highest
and lowest quarterly return during the life of the
Portfolio.
The Portfolio's past performance does not necessarily
indicate how the Portfolio will perform in the future.
The Portfolio's performance is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
Equity Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 22.67%
1990 (2.22)%
1991 31.22%
1992 17.90%
1993 7.85%
1994 3.81%
1995 38.85%
1996 23.36%
1997 26.63%
1998 11.86%
During the period from the inception of the Equity Portfolio through December
31, 1998, the highest quarterly return was 14.17% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.32)% (for the quarter ended
September 30, 1990).
*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 Portfolio immediately after the
transaction were $86,789,755 with respect to the Old Trust and $3,764,598 with
respect to the Fund. For the period prior to September 16, 1994, the performance
figures above for each of the Equity Portfolio reflects the performance of the
corresponding Portfolio of the Old Trust. The Old Trust commenced operations on
August 1, 1988.
3
<PAGE>
The table shows how the average annual returns for one year, five years and for
the life of the Equity Portfolio compares to that of the Standard & Poor's
composite Index of 500 Stocks. The table gives some indication of the risks of
the Portfolio by comparing the performance of the Portfolio with a broad measure
of market performance.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
- --------------------------------------------------------------------------------
Equity Portfolio 11.86% 20.28% 17.00%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
Equity Portfolio
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. When we
use the term "equity securities," we mean common and preferred stocks,
convertible debt, warrants and equity options. 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select companies that
it believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o high returns on capital
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
4
<PAGE>
A Common stocks 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.
RISKS
Q What are the risks of investing in the Portfolio?
A The Equity Portfolio invests 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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.
Sector Risk - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad returns for a period of time.
Foreign Exposure - When selecting foreign securities for the Portfolio,
OpCap Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign
currencies will be affected by changes in the value of that
currency.
o Liquidity - Some foreign markets are less liquid and more
volatile than the U.S. stock market.
o Limited information - There may be less public information
about foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not
yet been determined.
5
<PAGE>
o Emerging Markets - There are greater risks of unstable
governments and economics and restriction on foreign ownership
in these countries. The Portfolio presently intends to limit
investment in emerging markets to no more than 5% of its total
assets.
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 The Equity Portfolio has the authority to use the following derivative
instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolio does not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of the Portfolio's futures or options positions are not
correlated with its other investments.
o The Portfolio cannot close out a position because of an illiquid
market.
Q Do the Portfolios expect to engage in short-term trading?
A The Portfolio does not expect to engage in frequent short term trading.
The Financial Highlights table in this prospectus shows the Portfolio's
turnover rates during prior fiscal years.
Q Can the Portfolio vary from their investment goals?
6
<PAGE>
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolio may invest up to 100% of their assets in defensive investments
such as U.S. Government securities and money market instruments. To the
extent that the Portfolio takes a defensive position, it will not be
pursuing its investment objective.
FUND MANAGEMENT
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolio paid OpCap Advisors the following fees as a percentage of
average daily net assets during the fiscal year ended December 31, 1998:
Equity Portfolio ................. 80%
7
<PAGE>
Portfolio Managers
[PHOTO OMITTED]
Eileen Rominger, Managing Director of Oppenheimer Capital, has managed the
Equity Portfolio from its inception. She has worked with us as an analyst and
portfolio manager since 1981. She holds a BA Cum Laude from Fairfield University
and a MBA in Finance from the Wharton Graduate School of Business.
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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.
8
<PAGE>
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
9
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to 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 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
Dividends to shareholders from
net investment income ............................... (0.39) (0.28) (0.24) (0.09) --
Distributions to shareholders 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) ...................................... 11.9% 26.6% 23.4% 38.9% (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 (5) ........................... 0.94%(4) 0.99% 0.93%(6) 0.72% (6) 0.72%(3,6)
------- ------- ------- ------- ----------------------
Ratio of net investment income
to average net assets ............................... 1.36%(4) 1.25% 1.29%(6) 1.74% (6) 1.80%(3,6)
------- ------- ------- ------- ----------------------
Portfolio turnover rate ............................... 29% 32% 36% 31% 6%
------- ------- ------- ------- ----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $36,402,283.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.05% and 1.15%,
respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
10
<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 Portfolio's
investments is available in the Portfolio's annual and semi-annual reports to
shareholders. In the 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 Portfolio's 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 Portfolio's 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.
OCC Accumulation Trust
Equity Portfolio
(Investment Company Act file no. 811-8512)
11
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company which includes the
following investment portfolio.
Managed Portfolio
Shares of the Portfolio 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 the Portfolio's
shares as an investment or determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ....................................................... 2
Principal Investment Strategies ........................................... 4
Risks ..................................................................... 5
Investment Policies ....................................................... 7
Fund Management ........................................................... 8
Share Price ............................................................... 9
Distributions and Taxes ................................................... 9
Year 2000 ................................................................. 9
Financial Highlights ...................................................... 10
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Managed Portfolio ..............Growth of capital over time
Principal Investment
Strategies o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
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.
2
<PAGE>
Principal Risks You could lose money on your investment in the Managed
Portfolio or the Portfolio could underperform other
investments if any of the following happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the Managed
Portfolio (to the extent that the Managed Portfolio
holds fixed income securities) or the Portfolio could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolio then would have to reinvest these
prepayments at lower rates.
Bar Chart and
Performance Table The bar chart provides some indication of the risks of
investing in the Portfolio by showing changes in the
performance of the Portfolio's shares from year to year
for the life of the Portfolio and the highest and lowest
quarterly return during the life of the Portfolio.
The Portfolio's past performance does not necessarily
indicate how the Portfolio will perform in the future.
The Portfolio's performance is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
3
<PAGE>
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
*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 the Managed Portfolio immediately after the transaction
were $682,601,380 with respect to the Old Trust and $51,345,102 with respect to
the Fund. For the period prior to September 16, 1994, the performance figures
above for each of the Managed Portfolio 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 Managed Portfolio compare to that of the Standard & Poor's
composite Index of 500 Stocks. The table gives some indication of the risks of
the Portfolio by comparing the performance of the Portfolio with a broad measure
of market performance.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
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' assessments of the relative outlook for
such investments.
4
<PAGE>
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 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
RISKS
Q What are the risks of investing in the Portfolio?
A The Managed Portfolio invests 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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.
5
<PAGE>
Sector Risk - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity
and fixed income securities. The portfolio manager of the Portfolio can
make the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios,
OpCap Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign currencies
will be affected by changes in the value of that currency.
o Liquidity - Some foreign markets are less liquid and more volatile
than the U.S. stock market.
o Limited information - There may be less public information about
foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not yet
been determined.
o Emerging Markets - There are greater risks of unstable governments
and economics 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 Managed Portfolio invests in debt securities, the
Portfolio is exposed to these risks:
o Interest rate risk - The risk that changes in interest rates will
affect the value of fixed income securities in the Portfolio.
o Prepayment risk - The risk that the holder of a mortgage underlying
a mortgage backed security will prepay principal.
o 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.
6
<PAGE>
INVESTMENT POLICIES
Q Can the Portfolio change its investment objective and investment policies?
A Fundamental policies of the Portfolio cannot be changed without the
approval of a majority of the outstanding voting shares of the Portfolio.
The 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 Portfolio use derivative instruments?
A The Managed Portfolio has the authority to use the following derivative
instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolio does not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are not
correlated with its other investments.
o A Portfolio cannot close out a position because of an illiquid
market.
Q Does the Portfolio expect to engage in short-term trading?
A The Portfolio does not expect to engage in frequent short term trading.
The Financial Highlights table in this prospectus shows the Portfolio's
turnover rates during prior fiscal years.
Q Can the Portfolio vary from its investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolio 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 the Portfolio takes a defensive position, it will not be
pursuing its investment objective.
7
<PAGE>
FUND MANAGEMENT
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Managed Portfolio of the Fund paid OpCap Advisors the following fees
as a percentage of average daily net assets during the fiscal year ended
December 31, 1998:
Managed Portfolio ...................... .78%
Portfolio Manager
[PHOTO OMITTED]
Richard Glasebrook, who is a Managing Director of Oppenheimer Capital, has been
the portfolio manager of the Managed Portfolio since its inception. He joined us
in 1991. He has a BA from Kenyan College and a MBA from the Harvard School of
Business Administration.
8
<PAGE>
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners of
variable products.
The Portfolio pays dividends from its net investment income and
distributes any net capital gains that it has realized at least once a year.
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's 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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolio's financial statements, is
included in the Fund's SAI, which is available upon request.
10
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- -------- --------
Income 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
Dividends to shareholders from
net investment income ............................ (0.33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) ........................ 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66%(3,6)
-------- -------- -------- -------- --------
Ratio of net investment income
to average net assets ............................ 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34%(3,6)
-------- -------- -------- -------- --------
Portfolio turnover rate ............................ 37% 32% 27% 22% 8%
-------- -------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the
year ended December 31, 1996, 0.74% and 1.77%, respectively, for the year
ended December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
11
<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 Portfolio's
investments is available in the Portfolio's 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 Portfolio's 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 Portfolio's 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.
OCC Accumulation Trust
Managed Portfolio
(Investment Company Act file no. 811-8512)
12
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Global Equity Portfolio
Managed 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ...........................................................2
Principal Investment Strategies ...............................................5
Risks .........................................................................6
Investment Policies ...........................................................8
Fund Management ...............................................................9
Share Price ..................................................................10
Distributions and Taxes ......................................................11
Year 2000 ....................................................................11
Financial Highlights .........................................................12
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Global Equity Portfolio....Long term capital appreciation
Managed Portfolio..........Growth of capital over time
Principal Investment
Strategies o The Global Equity Portfolio invests primarily in
equity securities on a worldwide basis and may
invest up to a lesser extent in U.S. or foreign
fixed income securities.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
2
<PAGE>
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.
Principal Risks You could lose money on your investment in the Global
Equity Portfolio or Managed Portfolio or these
Portfolios could underperform other investments if any
of the following happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the Managed
or the Global Equity Portfolios (to the extent that the
Managed or the Global Equity Portfolios hold fixed
income securities) or those Portfolios could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would have to reinvest these
prepayments at lower rates.
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.
3
<PAGE>
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the future.
The Portfolios' performance is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
Global Equity
1996 15.02%
1997 14.02%
1998 13.29%
During the period from the inception of the Global Equity Portfolio through
December 31, 1998, the highest quarterly return was 14.89% (for the quarter
ended December 31, 1998) and the lowest quarterly return was (15.04)% (for the
quarter ended September 30, 1998).
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
*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 the Managed Portfolio immediately after the transaction
were $682,601,380, with respect to the Old Trust and $51,345,102 with respect to
the Fund. For the period prior to September 16, 1994, the performance figures
above for the Managed Portfolio reflect the performance of the corresponding
Portfolio of the Old Trust. The Old Trust commenced operations on August 1,
1988.
4
<PAGE>
The table shows how the average annual returns for one year, five years and for
the life of the Managed Portfolio compare to that of the Standard & Poor's
composite Index of 500 Stocks, and how the average annual returns for the Global
Equity Portfolio compare to the MSCI World 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.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
--------- ------------ ---------------
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
Global Equity Portfolio 13.29% N/A 15.96%
- --------------------------------------------------------------------------------
MSCI World Index 24.34% N/A 19.37%
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
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
anywhere in the world. The Portfolio may invest up to 35% of its total
assets in fixed income securities which may be lower than investment
grade.
Q How does OpCap Advisors select stocks for the Portfolio?
A OpCap Advisors uses fundamental company analysis to find companies that it
believes have one or more of the following:
o valuable consumer or commercial franchises
o strong shareholder-oriented management
o substantial and growing discretionary cash flow
o favorable price to intrinsic value relationship.
Q What are the potential rewards of investing in the Portfolio?
A U.S. stocks represent less than half of the world's stock market
capitalization. Foreign securities provide additional opportunities and
diversification.
5
<PAGE>
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' 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 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
RISKS
Q What are the risks of investing in the Portfolios?
A The Global Equity and Managed Portfolios invest principally in equity
securities which may be affected by the following:
6
<PAGE>
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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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 - OpCap Advisors is a bottom up investment manager. That means that
OpCap Advisors selects securities for a Portfolio based on the investment merits
of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time. OpCap
Advisors is a long-term investor and its investment style can produce bad
returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity and
fixed income securities. The portfolio manager of the Managed Portfolio can make
the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios, OpCap
Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign currencies
will be affected by changes in the value of that currency.
o Liquidity - Some foreign markets are less liquid and more volatile
than the U.S. stock market.
o Limited information - There may be less public information about
foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not yet
been determined.
o Emerging Markets - There are greater risks of unstable governments
and economics 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.
7
<PAGE>
To the extent that the Managed and the Global Equity Portfolios invest in debt
securities, the Portfolios are exposed to these risks:
o Interest rate risk - The risk that changes in interest rates will
affect the value of fixed income securities in the Portfolio.
o Prepayment risk - The risk that the holder of a mortgage underlying
a mortgage backed security will prepay principal.
o 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 invests in lower grade debt
securities, you should know that lower grade debt may have the following
additional risks:
o more volatility
o less liquidity
o 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 The Global Equity and Managed Portfolios have the authority to use the
following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
8
<PAGE>
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are not
correlated with its other investments.
o 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 Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their 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
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Global Equity Portfolio...............80%
Managed Portfolio.....................78%
9
<PAGE>
Portfolio Managers
[PHOTO OMITTED] James Sheldon became portfolio manager of the foreign
portion of the Global Equity Portfolio 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 us in February 1998 as a Senior Vice
President. Before joining us, 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 us in 1991. He has a BA from Kenyan
College and a MBA from the Harvard School of Business
Administration.
[PHOTO OMITTED] Richard Glasebrook has been the portfolio manager of the
Managed Portfolio since its inception.
SHARE PRICE
We calculate 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 Portfolios Shares Outstanding
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we will value the security at fair value.
10
<PAGE>
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 contractowners 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.
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
11
<PAGE>
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
12
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------- March 1, 1995(1) to
1998 1997 1996 December 31, 1995
------- ------- ------- -------------------
<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
Dividends to shareholders from net investment income .... (0.18) (0.04) (0.05) (0.03)
Distributions to shareholders in excess of
net investment income ................................. -- (0.03) -- --
Distributions to shareholders from net realized gains ... (0.61) (0.69) (0.07) (0.24)
------- ------- ------- ------
Total dividends and distributions to shareholders ..... (0.79) (0.76) (0.12) (0.27)
------- ------- ------- ------
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 (5) 1.13%(4) 1.19%(6) 1.42%(6) 1.25% (3,6)
------- ------- ------- ------
Ratio of net investment income to average net assets .... 0.79%(4) 0.45%(6) 0.81%(6) 1.02% (3,6)
------- ------- ------- ------
Portfolio turnover rate ................................. 55% 53% 40% 67%
------- ------- ------- ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $30,893,014.
(5) The ratios are calculated to include expenses offset by earnings credits
from a custodian bank (See note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.20% and 0.44%,
respectively, for the year ended December 31, 1997, and 1.83% and 0.22%,
respectively, for the year ended December 31, 1996 and 3.94% and (1.67%)
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
13
<PAGE>
OCC ACCUMULATION TRUST MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- ------- -------
Income 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
Dividends to shareholders from
net investment income ......................... (0.33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) ..................... 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66% (3,6)
-------- -------- -------- ------- -------
Ratio of net investment income
to average net assets ......................... 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34% (3,6)
-------- -------- -------- ------- -------
Portfolio turnover rate ......................... 37% 32% 27% 22% 8%
-------- -------- -------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Advisor waived a portion of its fees.
If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the
year ended December 31, 1996, 0.74% and 1.77%, respectively, for the year
ended December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
14
<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.
OCC Accumulation Trust
Global Equity Portfolio
Managed Portfolio
(Investment Company Act file no.
811-8512)
15
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Small Cap Portfolio
Managed 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ...........................................................2
Principal Investment Strategies ...............................................6
Risks .........................................................................8
Investment Policies ..........................................................10
Fund Management ..............................................................11
Share Price ..................................................................13
Distributions and Taxes ......................................................13
Year 2000 ....................................................................13
Financial Highlights .........................................................14
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Small Cap Portfolio .........Capital appreciation
Managed Portfolio ...........Growth of capital over time
U.S. Gov't Income Portfolio..High current income and
protection of capital
Principal Investment
Strategies o The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
o 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.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
2
<PAGE>
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
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.
Principal Risks You could lose money on your investment in the Small Cap
Portfolio or Managed Portfolio or these Portfolios could
underperform other investments if any of the following
happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the U.S.
Government Income Portfolio or the Managed Portfolio
(to the extent that the Managed Portfolio holds fixed
income securities) or those Portfolios could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would 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.
3
<PAGE>
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.
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the future.
The Portfolios' performance is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
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, 1998, the highest quarterly return was 19.20% (for the quarter ended March
31, 1991) and the lowest quarterly return was (17.26)% (for the quarter ended
September 30, 1998).
4
<PAGE>
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
U.S. Government Income Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1996 3.02%
1997 7.04%
1998 8.15%
During the period from the inception of the U.S. Government Income Portfolio
through December 31, 1998, the highest quarterly return was 4.68% (for the
quarter ended September 30, 1998) and the lowest quarterly return was (.80)%
(for the quarter ended March 31, 1996).
*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 Small Cap and Managed Portfolios
immediately after the transaction were $139,812,573 and $682,601,380,
respectively, with respect to the Old Trust and for each of the Small Cap and
Managed Portfolios, $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 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 Managed Portfolio compare to that of the Standard & Poor's
composite Index of 500 Stocks, how the average annual returns for the Small Cap
Portfolio compare to the Russell 2000, and how the returns for the U.S.
Government Income Portfolio compare to the Lehman Intermediate
5
<PAGE>
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.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
Small Cap Portfolio (9.03)% 8.53% 12.85%
- --------------------------------------------------------------------------------
Russell 2000 (2.55)% 11.86% 12.30%
- --------------------------------------------------------------------------------
U.S. Government Income Portfolio 8.15% N/A 7.78%
- --------------------------------------------------------------------------------
Lehman Intermediate Government
Bond Index 8.49% N/A 8.60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Government Income Portfolio Yield for the 30-day period ended
December 31, 1998
- --------------------------------------------------------------------------------
4.58%
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
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.
When we use the term "equity securities," we mean common and preferred
stocks, convertible debt, warrants and equity options. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
6
<PAGE>
o high returns on capital
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
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 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, the stock can be revalued more
efficiently.
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' 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 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. The Portfolio can
invest up to 100% of its assets in
7
<PAGE>
debt securities but will only do so if equity securities are not an
attractive investment.
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.'
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors observes current and historical yield relationships between
maturities and sectors to seek the best relative values. The Portfolio
maintains an average maturity between five and ten years. The Portfolio
invests principally in U.S. treasury and U.S. Government agency
securities. The Portfolio invests in mortgage backed securities during
periods of stable interest rates. 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 Small Cap and Managed 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
8
<PAGE>
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 - OpCap Advisors is a bottom up investment manager. That means that
OpCap Advisors selects securities for a Portfolio based on the investment merits
of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time. OpCap
Advisors is a long-term investor and its investment style can produce bad
returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity and
fixed income securities. The portfolio manager of the Managed Portfolio can make
the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios, OpCap
Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign currencies
will be affected by changes in the value of that currency.
o Liquidity - Some foreign markets are less liquid and more volatile
than the U.S. stock market.
o Limited information - There may be less public information about
foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not yet
been determined.
o Emerging Markets - There are greater risks of unstable governments
and economics 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 Managed and U.S. Government Income Portfolios invest in
debt securities, the Portfolios are exposed to these risks:
9
<PAGE>
o Interest rate risk - The risk that changes in interest rates will
affect the value of fixed income securities in the Portfolio.
o Prepayment risk - The risk that the holder of a mortgage underlying
a mortgage backed security will prepay principal.
o 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.
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 The Small Cap and Managed Portfolios have the authority to use the
following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are not
correlated with its other investments.
o A Portfolio cannot close out a position because of an illiquid
market.
Q Do the Portfolios expect to engage in short-term trading?
10
<PAGE>
A The Portfolios do not expect to engage in frequent short term trading. The
Financial Highlights table in this prospectus shows the Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their 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
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Small Cap Portfolio ................. .80%
Managed Portfolio ................... .78%
U.S. Government Income Portfolio .... .40%
OpCap Advisors waived a portion of its fees from the U.S. Government
Income Portfolio for the fiscal year ended December 31, 1998.
11
<PAGE>
Portfolio Managers
[PHOTO OMITTED] Timothy McCormack has been a portfolio manager of the
Small Cap Portfolio since May 1996. Mr. McCormack,
Senior Vice President of Oppenheimer Capital, joined us
in 1994. Before that, 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 of the Small Cap Portfolio
since February 1999, 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. and
previously, a Special Situations Analyst at Argus
Research Corp for over three years. He has a BS degree
in marketing from the University of Scranton.
[PHOTO OMITTED] Richard Glasebrook, who is a Managing Director of
Oppenheimer Capital, has been the portfolio manager of
the Managed Portfolio since its inception. He joined us
in 1991. He has a BA from Kenyan College and a MBA from
the Harvard School of Business Administration.
[PHOTO OMITTED] Vikki Hanges, Senior Vice President of Oppenheimer
Capital, has been the portfolio manager of the U.S.
Government Income Portfolio since its inception. She
joined us in 1982. Ms. Hanges has a BS from Cornell
University.
12
<PAGE>
SHARE PRICE
We calculate 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 Oustanding
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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 computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
13
<PAGE>
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- ------- ------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 26.37 $ 22.61 $ 19.91 $ 17.38 $17.49
-------- -------- ------- ------- ------
Income 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
Dividends to shareholders from
net investment income ......................... (0.09) (0.13) (0.25) (0.05) --
Distributions to shareholders from
net realized gains ............................ (0.94) (0.92) (0.64) (0.05) --
-------- -------- ------- ------- ------
Total dividends and distributions to shareholders (1.03) (1.05) (0.89) (0.10) --
-------- -------- ------- ------- ------
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 (5) ..................... 0.88% (4) 0.97% 0.93% (6) 0.74% (6) 0.74% (3,6)
-------- -------- ------- ------- ------
Ratio of net investment income
to average net assets ......................... 0.72% (4) 0.64% 1.03% (6) 1.75% (6) 1.22% (3,6)
-------- -------- ------- ------- ------
Portfolio turnover rate ......................... 51% 68% 50% 69% 32%
-------- -------- ------- ------- ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $136,219,417.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
15
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- ------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- ------- -----------
Income 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
Dividends to shareholders from
net investment income ......................... (0.33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) ..................... 0.82% (4) 0.87% 0.84% 0.66% (6) 0.66% (3,6)
-------- -------- -------- ------- -----------
Ratio of net investment income
to average net assets ......................... 1.74% (4) 1.42% 1.66% 1.85% (6) 2.34% (3,6)
-------- -------- -------- ------- -----------
Portfolio turnover rate ......................... 37% 32% 27% 22% 8%
-------- -------- -------- ------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted of its fees. If such waivers had not above, the
Adviser waived a been in effect, the ratios of net portion 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.
16
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------- January 3, 1995 (1)
1998 1997 1996 December 31, 1995
------- ------ ------ -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 10.51 $10.38 $10.62 $10.00
------- ------ ------ ------
Income 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
Dividends to shareholders from net investment income ...... (0.53) (0.57) (0.55) (0.60)
Distributions to shareholders 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 (5,6) 1.00%(4) 0.93% 0.96% 0.75%(3)
------- ------ ------ ------
Ratio of net investment income to average net assets (6) .. 4.96%(4) 5.51% 5.27% 5.75%(3)
------- ------ ------ ------
Portfolio turnover rate ................................... 80%(4) 80% 31% 65%(3)
------- ------ ------ ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencements of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $8,295,571.
(5) The ratios are calculated to include expenses offset by earnings credits
from a custodian bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.19% and 4.77%,
respectively, for the year ended December 31, 1998, 1.06% and 5.37%,
respectively, for the year ended December 31, 1997, 2.34% and 3.87%,
respectively, for the year ended December 31, 1996, and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
17
<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.
OCC Accumulation Trust
Small Cap Portfolio
Managed Portfolio
U.S. Government Income Portfolio
(Investment Company Act file no.
811-8512)
18
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Equity Portfolio
Small Cap Portfolio
Managed 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ...........................................................2
Principal Investment Strategies ...............................................6
Risks .........................................................................8
Investment Policies ...........................................................9
Fund Management ..............................................................11
Share Price ..................................................................13
Distributions and Taxes ......................................................13
Year 2000 ....................................................................13
Financial Highlights .........................................................14
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Equity Portfolio .........Long term capital appreciation
Small Cap Portfolio ......Capital appreciation
Managed Portfolio ........Growth of capital over time
Principal Investment
Strategies o The Equity Portfolio invests primarily in equity
securities listed on the New York Stock Exchange.
o The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
2
<PAGE>
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
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.
Principal Risks You could lose money on your investment in the Equity
Portfolio, Small Cap Portfolio or Managed Portfolio or
these Portfolios could underperform other investments if
any of the following happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the Managed
Portfolio (to the extent that the Managed Portfolio
holds fixed income securities) or the Managed Portfolio
could underperform other investments if any of the
following happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would have to reinvest these
prepayments at lower rates.
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
3
<PAGE>
and the highest and lowest quarterly return during the
life of each Portfolio.
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the future.
The Portfolios' performance is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
Equity Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 22.67%
1990 (2.22)%
1991 31.22%
1992 17.90%
1993 7.85%
1994 3.81%
1995 38.85%
1996 23.36%
1997 26.63%
1998 11.86%
During the period from the inception of the Equity Portfolio through December
31, 1998, the highest quarterly return was 14.17% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.32)% (for the quarter ended
September 30, 1990).
Small Cap Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 18.35%
1990 (9.76)%
1991 48.12%
1992 21.49%
1993 19.51%
1994 (1.01)%
1995 15.23%
1996 18.72%
1997 22.24%
1998 (9.03)%
During the period from the inception of the Small Cap Portfolio through December
31, 1998, the highest quarterly return was 19.20% (for the quarter ended March
31, 1991) and the lowest quarterly return was (17.26)% (for the quarter ended
September 30, 1998).
4
<PAGE>
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
*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 and how the average annual returns for the
Small Cap Portfolio compare to the Russell 2000. 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.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
--------- ------------ ---------------
- --------------------------------------------------------------------------------
Equity Portfolio 11.86% 20.28% 17.00%
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
Small Cap Portfolio (9.03)% 8.53% 12.85%
- --------------------------------------------------------------------------------
Russell 2000 (2.55)% 11.86% 12.30%
- --------------------------------------------------------------------------------
5
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
Equity Portfolio
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. When we
use the term "equity securities," we mean common and preferred stocks,
convertible debt, warrants and equity options. 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select companies that
it believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o high returns on capital
o favorable price to intrinsic value relationship
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.
Equity investors should have a long term investment horizon and should be
prepared for the ups and downs of the stock markets.
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.
6
<PAGE>
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.
When we use the term "equity securities," we mean common and preferred
stocks, convertible debt, warrants and equity options. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o high returns on capital
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
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 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, the stock can be revalued more
efficiently.
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' 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 view of relative values.
The Managed Portfolio may purchase securities listed on U.S. or foreign
securities exchanges or traded in the U.S.
7
<PAGE>
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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
RISKS
Q What are the risks of investing in the Portfolios?
A The Equity, Small Cap and Managed 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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 - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
8
<PAGE>
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity
and fixed income securities. The portfolio manager of the Managed
Portfolio can make the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios,
OpCap Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign
currencies will be affected by changes in the value of that
currency.
o Liquidity - Some foreign markets are less liquid and more
volatile than the U.S. stock market.
o Limited information - There may be less public information
about foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not
yet been determined.
o Emerging Markets - There are greater risks of unstable
governments and economics 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 Managed Portfolio invests in debt securities, the
Portfolio is exposed to these risks:
o Interest rate risk - The risk that changes in interest rates
will affect the value of fixed income securities in the
Portfolio.
o Prepayment risk - The risk that the holder of a mortgage
underlying a mortgage backed security will prepay principal.
o 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.
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
9
<PAGE>
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 The Equity, Small Cap and Managed Portfolios have the authority to use the
following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are
not correlated with its other investments.
o 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 Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their 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.
10
<PAGE>
FUND MANAGEMENT
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Equity Portfolio ..................... .80%
Small Cap Portfolio .................. .80%
Managed Portfolio .................... .78%
Portfolio Managers
[PHOTO OMITTED]
Eileen Rominger, Managing Director of Oppenheimer Capital, has managed the
Equity Portfolio from its inception. She has worked with us as an analyst and
portfolio manager since 1981. She holds a BA Cum Laude from Fairfield University
and a MBA in Finance from the Wharton Graduate School of Business.
11
<PAGE>
[PHOTO OMITTED]
[PHOTO OMITTED]
Timothy McCormack has been a portfolio manager of the Small Cap Portfolio since
May 1996. Mr. McCormack, Senior Vice President of Oppenheimer Capital, joined us
in 1994. Before that, 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 of the Small Cap Portfolio since February 1999, 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. and
previously, a Special Situations Analyst at Argus Research Corp for over three
years. He has a BS degree in marketing from the University of Scranton.
[PHOTO OMITTED]
Richard Glasebrook, Managing Director of Oppenheimer Capital, has been the
portfolio manager of the Managed Portfolio since its inception. Mr. Glasebrook
joined us in 1991. He has a BA from Kenyan College and a MBA from the Harvard
School of Business Administration.
12
<PAGE>
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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.
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
13
<PAGE>
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
14
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to 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 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
Dividends to shareholders from
net investment income ........................ 0.39 (0.28) (0.24) (0.09) --
Distributions to shareholders 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) ................................ 11.9% 26.6% 23.4% 38.9% (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 (5) .................... 0.94%(4) 0.99% 0.93%(6) 0.72%(6) 0.72%(3,6)
------- ------- ------- ------ ----------------------
Ratio of net investment income
to average net assets ........................ 1.36%(4) 1.25% 1.29%(6) 1.74%(6) 1.80%(3,6)
------- ------- ------- ------ ----------------------
Portfolio turnover rate ......................... 29% 32% 36% 31% 6%
------- ------- ------- ------ ----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $36,402,283.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.05% and 1.15%,
respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December respectively, for the 31, 1996,
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.
15
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 26.37 $ 22.61 $ 19.91 $ 17.38 $17.49
-------- -------- -------- ------- -----------------------
Income 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
Dividends to shareholders from
net investment income ......................... (0.09) (0.13) (0.25) (0.05) --
Distributions to shareholders from
net realized gains ............................ (0.94) (0.92) (0.64) (0.05) --
-------- -------- -------- ------- -----------------------
Total dividends and distributions to
shareholders ................................ (1.03) (1.05) (0.89) (0.10) --
-------- -------- -------- ------- -----------------------
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 (5) ..................... 0.88%(4) 0.97% 0.93%(6) 0.74% 0.74%(3,6)
-------- -------- -------- ------- -----------------------
Ratio of net investment income
to average net assets ......................... 0.72%(4) 0.64% 1.03%(6) 1.75% 1.22%(3,6)
-------- -------- -------- ------- -----------------------
Portfolio turnover rate ......................... 51% 68% 50% 69% 32%
-------- -------- -------- ------- -----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $136,219,417.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
16
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- ------- -----------------------
Income 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
Dividends to shareholders from
net investment income ........................... (0 33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) ....................... 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66%(3,6)
-------- -------- -------- ------- -----------------------
Ratio of net investment income
to average net assets ........................... 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34%(3,6)
-------- -------- -------- ------- -----------------------
Portfolio turnover rate ........................... 37% 32% 27% 22% 8%
-------- -------- -------- ------- -----------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net portion
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.
17
<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.
OCC Accumulation Trust
Equity Portfolio
Small Cap Portfolio
Managed Portfolio
(Investment Company Act file no. 811-8512)
18
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Small Cap Portfolio
Global Equity Portfolio
Managed 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary ......................................................... 2
Principal Investment Strategies ............................................. 6
Risks ....................................................................... 8
Investment Policies ......................................................... 10
Fund Management ............................................................. 11
Share Price ................................................................. 13
Distributions and Taxes ..................................................... 13
Year 2000 ................................................................... 13
Financial Highlights ........................................................ 14
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Small Cap Portfolio ............... Capital appreciation
Global Equity Portfolio . Long term capital appreciation
Managed Portfolio .......... Growth of capital over time
Principal Investment
Strategies o The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
o The Global Equity Portfolio invests primarily in
equity securities on a worldwide basis and may
invest up to a lesser extent in U.S. or foreign
fixed income securities.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
2
<PAGE>
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
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.
Principal Risks You could lose money on your investment in the Small Cap
Portfolio, Global Equity Portfolio or Managed Portfolio
or these Portfolios could underperform other investments
if any of the following happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the Managed
or the Global Equity Portfolios (to the extent that the
Managed or the Global Equity Portfolios hold fixed
income securities) or those Portfolios could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would have to reinvest these
prepayments at lower rates.
3
<PAGE>
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.
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the future.
The Portfolios' performance is not the performance at
the separate account level and does not reflect charges
and deductions which are imposed under the variable
contracts.
Small Cap Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 18.35%
1990 (9.76)%
1991 48.12%
1992 21.49%
1993 19.51%
1994 (1.01)%
1995 15.23%
1996 18.72%
1997 22.24%
1998 (9.03)%
During the period from the inception of the Small Cap Portfolio through December
31, 1998, the highest quarterly return was 19.20% (for the quarter ended March
31, 1991) and the lowest quarterly return was (17.26)% (for the quarter ended
September 30, 1998).
Global Equity
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1996 15.02%
1997 14.02%
1998 13.29%
During the period from the inception of the Global Equity Portfolio through
December 31, 1998, the highest quarterly return was 14.89% (for the quarter
ended December 31, 1998) and the lowest quarterly return was (15.04)% (for the
quarter ended September 30, 1998).
4
<PAGE>
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.65%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
During the period from the inception of the Managed Portfolio through
December 31, 1998, the highest quarterly return was 20.80% (for the quarter
ended March 31, 1991) and the lowest quarterly return was (13.37)% (for the
quarter ended September 30, 1998).
*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 the Small Cap and Managed Portfolios immediately after
the transaction were $139,812,573 and $682,601,380, respectively, with respect
to the Old Trust and for the Small Cap and Managed Portfolios, $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 the 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 Managed Portfolio compare to that of the Standard & Poor's
composite Index of 500 Stocks, how the average annual returns for the Small Cap
Portfolio compare to the Russell 2000 and how the average annual returns for the
Global Equity Portfolio compare to the MSCI World 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.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
Small Cap Portfolio (9.03)% 8.53% 12.85%
- --------------------------------------------------------------------------------
Russell 2000 (2.55)% 11.86% 12.30%
- --------------------------------------------------------------------------------
Global Equity Portfolio 13.29% N/A 15.96%
- --------------------------------------------------------------------------------
MSCI World Index 24.34% N/A 19.37%
- --------------------------------------------------------------------------------
5
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
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.
When we use the term "equity securities," we mean common and preferred
stocks, convertible debt, warrants and equity options. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o high returns on capital
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
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 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, the stock can be revalued more
efficiently.
Global Equity Portfolio
Q What is the Portfolio's investment objective?
6
<PAGE>
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
anywhere in the world. The Portfolio may invest up to 35% of its total
assets in fixed income securities which may be lower than investment
grade.
Q How does OpCap Advisors select stocks for the Portfolio?
A OpCap Advisors uses fundamental company analysis to find companies that it
believes have one or more of the following:
o valuable consumer or commercial franchises
o strong shareholder-oriented management
o substantial and growing discretionary cash flow
o favorable price to intrinsic value relationship.
Q What are the potential rewards of investing in the Portfolio?
A U.S. stocks represent less than half of the world's stock market
capitalization. Foreign securities provide additional opportunities and
diversification.
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' 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 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.
Q How does OpCap Advisors select securities for the Portfolio?
7
<PAGE>
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
RISKS
Q What are the risks of investing in the Portfolios?
A The Small Cap, Global Equity and Managed 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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 - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity
and fixed income securities. The portfolio manager of the Managed
Portfolio can make the wrong allocation decisions.
8
<PAGE>
Foreign Exposure - When selecting foreign securities for the Portfolios, OpCap
Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign currencies
will be affected by changes in the value of that currency.
o Liquidity - Some foreign markets are less liquid and more volatile
than the U.S. stock market.
o Limited information - There may be less public information about
foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not yet
been determined.
o Emerging Markets - There are greater risks of unstable governments
and economics 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 Managed and Global Equity Portfolios invest in debt
securities, the Portfolios are exposed to these risks:
o Interest rate risk - The risk that changes in interest rates will
affect the value of fixed income securities in the Portfolio.
o Prepayment risk - The risk that the holder of a mortgage underlying
a mortgage backed security will prepay principal.
o 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 invests in lower grade debt
securities, you should know that lower grade debt may have the following
additional risks:
o more volatility
o less liquidity
o greater risk of issuer default or insolvency.
9
<PAGE>
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 The Small Cap, Global Equity and Managed Portfolios have the authority to
use the following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are not
correlated with its other investments.
o 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 Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their assets in defensive investments
such as U.S. Government securities
10
<PAGE>
and money market instruments. To the extent that a Portfolio takes a defensive
position, it will not be pursuing its investment objective.
FUND MANAGEMENT
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Small Cap Portfolio ............ .80%
Global Equity Portfolio ........ .80%
Managed Portfolio .............. .78%
11
<PAGE>
Portfolio Managers
[PHOTO OMITTED]
[PHOTO OMITTED]
Timothy McCormack has been a portfolio manager of the Small Cap Portfolio since
May 1996. Mr. McCormack, Senior Vice President of Oppenheimer Capital, joined us
in 1994. Before that, 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 of the Small Cap Portfolio since February 1999, 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. and
previously, a Special Situations Analyst at Argus Research Corp for over three
years. He has a BS degree in marketing from the University of Scranton.
[PHOTO OMITTED]
James Sheldon became portfolio manager of the foreign portion of the Global
Equity Portfolio 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 us in February 1998 as a
Senior Vice President. Before joining us, 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 us in 1991. He has a BA
from Kenyan College and a MBA from the Harvard School of Business
Administration.
[PHOTO OMITTED]
Richard Glasebrook has been the portfolio manager of the Managed Portfolio since
its inception.
12
<PAGE>
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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.
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
13
<PAGE>
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
14
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- ------- ------- ------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $26.37 $22.61 $19.91 $17.38 $17.49
-------- -------- ------- ------- ------
Income 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
Dividends to shareholders from
net investment income ........................... (0.09) (0.13) (0.25) (0.05) --
Distributions to shareholders from
net realized gains .............................. (0.94) (0.92) (0.64) (0.05) --
-------- -------- ------- ------- ------
Total dividends and distributions to shareholders (1.03) (1.05) (0.89) (0.10) --
-------- -------- ------- ------- ------
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 (5) ....................... 0.88%(4) 0.97% 0.93%(6) 0.74%(6) 0.74%(3,6)
-------- -------- ------- ------- ------
Ratio of net investment income
to average net assets ........................... 0.72%(4) 0.64% 1.03%(6) 1.75%(6) 1.22%(3,6)
-------- -------- ------- ------- ------
Portfolio turnover rate ........................... 51% 68% 50% 69% 32%
-------- -------- ------- ------- ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $136,219,417.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
15
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------- March 1, 1995 (1) to
1998 1997 1996 December 31, 1995
------- ------- ------- --------------------
<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
Dividends to shareholders from net investment income ..... (0.18) (0.04) (0.05) (0.03)
Distributions to shareholders in excess of
net investment income ............................... -- (0.03) -- --
Distributions to shareholders from net realized gains .... (0.61) (0.69) (0.07) (0.24)
------- ------- ------- -------
Total dividends and distributions to shareholders ... (0.79) (0.76) (0.12) (0.27)
------- ------- ------- -------
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 (5) 1.13% (4) 1.19% (6) 1.42% (6) 1.25% (3,6)
------- ------- ------- -------
Ratio of net investment income to average net assets ..... 0.79% (4) 0.45% (6) 0.81% (6) 1.02% (3,6)
------- ------- ------- -------
Portfolio turnover rate .................................. 55% 53% 40% 67%
------- ------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $30,893,014.
(5) The ratios are calculated to include to expenses offset by earnings
credits from a custodian bank (See note 1H in Notes to Financial
Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.20% and 0.44%
respectively,for the year ended December 31, 1997, and 1.83% and 0.22%,
respectively,for the year ended December 31, 1996 and 3.94% and (1.67%),
annualized,respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
16
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 42.38 $ 36.21 $ 30.14 $ 20.83 $ 21.80
-------- -------- -------- -------- --------
Income 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
Dividends to shareholders from
net investment income .......................... (0.33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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 (5) ...................... 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66%(3,6)
-------- -------- -------- -------- --------
Ratio of net investment income
to average net assets .......................... 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34%(3,6)
-------- -------- -------- -------- --------
Portfolio turnover rate ........................... 37% 32% 27% 22% 8%
-------- -------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
s(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the
year ended December 31, 1996, 0.74% and 1.77%, respectively, for the year
ended December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
17
<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.
OCC Accumulation Trust
Small Cap Portfolio
Global Equity Portfolio
Managed Portfolio
(Investment Company Act file no. 811-8512)
18
<PAGE>
OCC ACCUMULATION TRUST
Prospectus May 1, 1999
OCC ACCUMULATION TRUST is an open-end investment company with the following
investment portfolios.
Equity Portfolio
Small Cap Portfolio
Global Equity Portfolio
Managed 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. Anyone who tells you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
Page
----
Risk/Return Summary .................................................. 2
Principal Investment Strategies ...................................... 7
Risks ................................................................ 10
Investment Policies .................................................. 11
Fund Management ...................................................... 12
Share Price .......................................................... 15
Distributions and Taxes .............................................. 15
Year 2000 ............................................................ 15
Financial Highlights ................................................. 16
1
<PAGE>
RISK/RETURN SUMMARY
Investment Goals Equity Portfolio ......... Long term capital appreciation
Small Cap Portfolio ...... Capital appreciation
Global Equity Portfolio .. Long term capital appreciation
Managed Portfolio ........ Growth of capital over time
Principal Investment
Strategies o The Equity Portfolio invests primarily in equity
securities listed on the New York Stock Exchange.
o The Small Cap Portfolio invests primarily in
equity securities of companies with market
capitalizations under $1 billion.
o The Global Equity Portfolio invests primarily in
equity securities on a worldwide basis and may
invest up to a lesser extent in U.S. or foreign
fixed income securities.
o The Managed Portfolio invests in common stocks,
bonds and cash equivalents, based on the Adviser's
judgment.
Value Investing OpCap Advisors, the Portfolios' investment adviser,
applies the principles of value investing to select
securities for each Portfolio but they are implemented
by the portfolio managers differently depending on the
portfolio's category and the stock picking of the
individual portfolio managers.
When selecting equity securities, OpCap Advisors
believes there are two major components of value.
o 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:
o Price - OpCap Advisors looks for market
undervaluation great enough to offer the potential
for upside reward with what it believes is modest
downward risk.
2
<PAGE>
OpCap Advisors uses fundamental company analysis to
select securities. Fundamental company analysis involves
intensive evaluation of historic financial data
including:
o Company financial statements
o Market share analysis
o Unit volume growth
o Barriers to entry
o Pricing policies
o Management record.
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.
Principal Risks You could lose money on your investment in the Equity
Portfolio, Small Cap Portfolio, Global Equity Portfolio
or Managed Portfolio or these Portfolios could
underperform other investments if any of the following
happens:
o The stock market goes down.
o Value stocks fall out of favor with the stock
market.
o The market undervalues the stocks held by the
Portfolios for longer than expected.
o The stocks purchased by the Portfolios turn out
not to be undervalued
o Small cap, mid cap or foreign securities which
generally are more volatile than large cap
securities or than U.S. securities decline in
volume more steeply or become less liquid than
expected.
You could lose money on your investment in the Managed
or the Global Equity Portfolios (to the extent that the
Managed or the Global Equity Portfolios hold fixed
income securities) or those Portfolios could
underperform other investments if any of the following
happens:
o Interest rates rise and the bond market goes down.
o Issuers of debt instruments cannot meet their
obligations.
o Bond issuers' call bonds selling at a premium to
their call price before the maturity date.
3
<PAGE>
o Loans securing mortgage-backed obligations prepay
principal more rapidly than expected. The
Portfolios then would have to reinvest these
prepayments at lower rates.
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.
The Portfolios' past performance does not necessarily
indicate how each Portfolio will perform in the
future.The Portfolios' performance is not the
performance at the separate account level and does not
reflect charges and deductions which are imposed under
the variable contracts.
Equity Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 22.67%
1990 -2.22%
1991 31.22%
1992 17.90%
1993 7.85%
1994 3.81%
1995 38.85%
1996 23.36%
1997 26.63%
1998 11.86%
During the period from the inception of the Equity Portfolio through December
31, 1998, the highest quarterly return was 14.17% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.32)% (for the quarter ended
September 30, 1998).
4
<PAGE>
Small Cap Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 18.35%
1990 (9.76)%
1991 48.12%
1992 21.49%
1993 19.51%
1994 (1.01)%
1995 15.23%
1996 18.72%
1997 22.24%
1998 (9.03)%
During the period from the inception of the Small Cap Portfolio through December
31, 1998, the highest quarterly return was 19.20% (for the quarter ended March
31, 1991) and the lowest quarterly return was (17.26)% (for the quarter ended
September 30, 1998).
Global Equity
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1996 15.02%
1997 14.02%
1998 13.29%
During the period from the inception of the Global Equity Portfolio through
December 31, 1998, the highest quarterly return was 14.89% (for the quarter
ended December 31, 1998) and the lowest quarterly return was (15.04)% (for the
quarter ended September 30, 1998).
5
<PAGE>
Managed Portfolio
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIALS.]
1989 32.55%
1990 (3.63)%
1991 48.12%
1992 21.49%
1993 19.51%
1994 (1.01)%
1995 15.23%
1996 18.72%
1997 22.24%
1998 (9.03)%
During the period from the inception of the Managed Portfolio through December
31, 1998, the highest quarterly return was 20.80% (for the quarter ended March
31, 1991) and the lowest quarterly return was (13.37)% (for the quarter ended
September 30, 1998).
*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 the
Small Cap Portfolio compare to the Russell 2000 and how the average annual
returns for the Global Equity Portfolio compare to the MSCI World 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.
- --------------------------------------------------------------------------------
Average Annual Total Returns for the periods ended December 31, 1998
- --------------------------------------------------------------------------------
Past Year Past 5 Years Since Inception
--------- ------------ ---------------
- --------------------------------------------------------------------------------
Equity Portfolio 11.86% 20.28% 17.00%
- --------------------------------------------------------------------------------
Managed Portfolio 7.12% 19.15% 18.99%
- --------------------------------------------------------------------------------
S&P 500 Index 28.58% 24.05% 18.79%
- --------------------------------------------------------------------------------
Small Cap Portfolio (9.03)% 8.53% 12.85%
- --------------------------------------------------------------------------------
Russell 2000 (2.55)% 11.86% 12.30%
- --------------------------------------------------------------------------------
Global Equity Portfolio 13.29% N/A 15.96%
- --------------------------------------------------------------------------------
MSCI World Index 24.34% N/A 19.37%
- --------------------------------------------------------------------------------
6
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
Equity Portfolio
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. When we
use the term "equity securities," we mean common and preferred stocks,
convertible debt, warrants and equity options. 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select companies that
it believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o high returns on capital
o favorable price to intrinsic value relationship
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.
Equity investors should have a long term investment horizon and should be
prepared for the ups and downs of the stock markets.
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.
7
<PAGE>
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.
When we use the term "equity securities," we mean common and preferred
stocks, convertible debt, warrants and equity options. 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 How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o high returns on capital
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
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 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, the stock can be revalued more
efficiently.
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
anywhere in the world. The Portfolio may invest up to 35% of its total
assets in fixed income securities which may be lower than investment
grade.
Q How does OpCap Advisors select stocks for the Portfolio?
8
<PAGE>
A OpCap Advisors uses fundamental company analysis to find companies that it
believes have one or more of the following:
o valuable consumer or commercial franchises
o strong shareholder-oriented management
o substantial and growing discretionary cash flow
o favorable price to intrinsic value relationship.
Q What are the potential rewards of investing in the Portfolio?
A U.S. stocks represent less than half of the world's stock market
capitalization. Foreign securities provide additional opportunities and
diversification.
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' 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 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.
Q How does OpCap Advisors select securities for the Portfolio?
A OpCap Advisors uses fundamental company analysis to select stocks that it
believes are undervalued by the marketplace and have one or more of the
following characteristics:
o substantial and growing discretionary cash flow
o strong shareholder value-oriented management
o valuable consumer or commercial franchises
o favorable price to intrinsic value relationship
Q What are the potential rewards of investing in the Portfolio?
9
<PAGE>
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital. 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.
RISKS
Q What are the risks of investing in the Portfolios?
A The Equity, Small Cap, Global Equity and Managed 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.
Stock Picking - OpCap Advisors may select stocks that turn out not to be
undervalued.
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 - OpCap Advisors is a bottom up investment manager. That means
that OpCap Advisors selects securities for a Portfolio based on the
investment merits of a particular issue rather than the business sector.
Value Investing - Value stocks may be out of favor for a period of time.
OpCap Advisors is a long-term investor and its investment style can
produce bad returns for a period of time.
Asset Allocation Risk - The Managed Portfolio invests in a mix of equity
and fixed income securities. The portfolio manager of the Managed
Portfolio can make the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios,
OpCap Advisors uses approximately the same standards that it sets 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.
o 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.
o Currency risk - The value of securities held in foreign
currencies will be affected by
10
<PAGE>
changes in the value of that currency.
o Liquidity - Some foreign markets are less liquid and more
volatile than the U.S. stock market.
o Limited information - There may be less public information
about foreign issuers than there is about U.S. issuers.
o 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.
o Euro - The effect of the Euro on international markets has not
yet been determined.
o Emerging Markets - There are greater risks of unstable
governments and economics 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 Managed and Global Equity Portfolios invest in debt
securities, the Portfolios are exposed to these risks:
o Interest rate risk - The risk that changes in interest rates
will affect the value of fixed income securities in the
Portfolio.
o Prepayment risk - The risk that the holder of a mortgage
underlying a mortgage backed security will prepay principal.
o 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 invests in lower grade debt
securities, you should know that lower grade debt may have the following
additional risks:
o more volatility
o less liquidity
o 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?
11
<PAGE>
A The Equity, Small Cap, Global Equity and Managed Portfolios have the
authority to use the following derivative instruments:
o futures contracts
o options on futures contracts
o forward foreign currency contracts
o covered calls written on individual securities
o uncovered calls and puts
o options on stock indices
o The Portfolios do not expect to use derivative instruments
significantly if at all, and do not need to use derivative
instruments to seek their investment goals.
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if
o OpCap Advisors uses a derivative instrument at the wrong time
o The prices of a Portfolio's futures or options positions are
not correlated with its other investments.
o 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 Portfolios'
turnover rates during prior fiscal years.
Q Can the Portfolios vary from their investment goals?
A When OpCap Advisors thinks market or economic conditions are adverse, the
Portfolios may invest up to 100% of their 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
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 $59.8 billion of assets under management as of
March 31, 1999. The mailing address is One World Financial Center, New York, New
York 10281.
12
<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 the Portfolio (and places
brokerage orders) and its business affairs. Employees of Oppenheimer Capital as
well as employees of OpCap Advisors perform these services.
The Portfolios of the Fund paid OpCap Advisors the following fees as a
percentage of average daily net assets during the fiscal year ended December 31,
1998:
Equity Portfolio ............... .80%
Small Cap Portfolio ............ .80%
Global Equity Portfolio ........ .80%
Managed Portfolio .............. .78%
Portfolio Managers
[PHOTO OMITTED]
Eileen Rominger, Managing Director of Oppenheimer Capital, has managed the
Equity Portfolio from its inception. She has worked with us as an analyst and
portfolio manager since 1981. She holds a BA Cum Laude from Fairfield University
and a MBA in Finance from the Wharton Graduate School of Business.
[PHOTO OMITTED]
[PHOTO OMITTED]
Timothy McCormack has been a portfolio manager of the Small Cap Portfolio since
May 1996. Mr. McCormack, Senior Vice President of Oppenheimer Capital, joined us
in 1994. Before that, 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 of the Small Cap Portfolio since February 1999, 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. and
previously, a Special Situations Analyst at Argus Research Corp for over three
years. He has a BS degree in marketing from the University of Scranton.
13
<PAGE>
[PHOTO OMITTED]
James Sheldon became portfolio manager of the foreign portion of the Global
Equity Portfolio 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 us in February 1998 as a
Senior Vice President. Before joining us, 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 us in 1991. He has a BA
from Kenyan College and a MBA from the Harvard School of Business
Administration.
[PHOTO OMITTED]
Richard Glasebrook has been the portfolio manager of the Managed Portfolio since
its inception.
14
<PAGE>
SHARE PRICE
We calculate 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
We use 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 we use fair value to price a security, we review the pricing
method with the Fund's Board. We price 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 we believe changes the value of a security,
then we 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 contractowners 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.
YEAR 2000 ISSUES
Many computer systems use only two digits to describe years, such as 98
for 1998. A program written this way will not recognize the year 2000. The
Advisor and the Fund's Transfer Agent have been actively working on changes to
their own computer systems to deal with the Year 2000 and expect that their
systems will be ready for the Year 2000. In evaluating securities for investment
by the Portfolios, the Advisor considers year 2000 risks in addition to other
risks relevant to the issuer. The Advisor cannot be sure that it will be
successful or that other computer systems that interact with the Fund will be in
compliance.
15
<PAGE>
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). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Portfolios' financial statements, is
included in the Fund's SAI, which is available upon request.
16
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to 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 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
Dividends to shareholders from
net investment income ................................ (0.39) (0.28) (0.24) (0.09) --
Distributions to shareholders 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) ...................................... 11.9% 26.6% 23.4% 38.9% (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 (5) ............................ 0.94%(4) 0.99% 0.93%(6) 0.72%(6) 0.72% (3,6)
------- ------- ------- ------ ------
Ratio of net investment income
to average net assets ................................ 1.36%(4) 1.25% 1.29%(6) 1.74%(6) 1.80% (3,6)
------- ------- ------- ------ ------
Portfolio turnover rate ............................... 29% 32% 36% 31% 6%
------- ------- ------- ------ ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $36,402,283.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.05% and 1.15%,
respectively, for the year ended December 31, 1996, 1.26% and 1.20%,
respectively, for the year ended December 31, 1995 and 2.09% and 0.43%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
17
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
------ ------ ------ ------ ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $26.37 $22.61 $19.91 $17.38 $17.49
-------- -------- ------- ------- ------
Income 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
Dividends to shareholders from
net investment income ................................ (0.09) (0.13) (0.25) (0.05) --
Distributions to shareholders from
net realized gains ................................... (0.94) (0.92) (0.64) (0.05) --
-------- -------- ------- ------- ------
Total dividends and distributions to shareholders ..... (1.03) (1.05) (0.89) (0.10) --
-------- -------- ------- ------- ------
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 (5) ............................ 0.88%(4) 0.97% 0.93%(6) 0.74%(6) 0.74%(3,6)
-------- -------- ------- ------- ------
Ratio of net investment income
to average net assets ................................ 0.72%(4) 0.64% 1.03%(6) 1.75%(6) 1.22%(3,6)
-------- -------- ------- ------- ------
Portfolio turnover rate ............................... 51% 68% 50% 69% 32%
-------- -------- ------- ------- ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $136,219,417.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.01% and 0.92%,
respectively, for the year ended December 31, 1996, 0.99% and 1.50%,
respectively, for the year ended December 31, 1995 and 1.64% and 0.32%,
annualized, respectively, for the period September 16, 1994 (commencement
of operations) to December 31, 1994.
18
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------- March 1, 1995 (1) to
1998 1997 1996 December 31, 1995
------- ------- ------- --------------------
<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
Dividends to shareholders from net investment income .... (0.18) (0.04) (0.05) (0.03)
Distributions to shareholders in excess of
net investment income .................................. -- (0.03) -- --
Distributions to shareholders from net realized gains ... (0.61) (0.69) (0.07) (0.24)
------- ------- ------- ------
Total dividends and distributions to shareholders ...... (0.79) (0.76) (0.12) (0.27)
------- ------- ------- ------
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 (5) 1.13%(4) 1.19%(6) 1.42%(6) 1.25%(3,6)
------- ------- ------- ------
Ratio of net investment income to average net assets .... 0.79%(4) 0.45%(6) 0.81%(6) 1.02%(3,6)
------- ------- ------- ------
Portfolio turnover rate ................................. 55% 53% 40% 67%
------- ------- ------- ------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $30,893,014.
(5) The ratios are calculated to include expenses offset by earnings credits
from a custodian bank (See note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net investment
income to average net assets would have been 1.20% and 0.44%,
respectively, for the year ended December 31, 1997, and 1.83% and 0.22%,
respectively, for the year ended December 31, 1996 and 3.94% and (1.67%),
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
19
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------- September 16, 1994 (1)
1998 1997 1996 1995 to December 31, 1994
-------- -------- -------- ------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $42.38 $36.21 $30.14 $20.83 $21.80
-------- -------- -------- ------- -------
Income 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
Dividends to shareholders from
net investment income ........................... (0.33) (0.40) (0.41) (0.13) --
Distributions to shareholders 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(5) ........................ 0.82%(4) 0.87% 0.84%(6) 0.66%(6) 0.66%(3,6)
-------- -------- -------- ------- -------
Ratio of net investment income
to average net assets ........................... 1.74%(4) 1.42% 1.66%(6) 1.85%(6) 2.34%(3,6)
-------- -------- -------- ------- -------
Portfolio turnover rate .......................... 37% 32% 27% 22% 8%
-------- -------- -------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $658,732,358.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 0.85% and 1.65%, respectively, for the
year ended December 31, 1996, 0.74% and 1.77%, respectively, for the year
ended December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
20
<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.
OCC Accumulation Trust
Equity Portfolio
Small Cap Portfolio
Global Equity Portfolio
Managed Portfolio
(Investment Company Act file no. 811-8512)
21
<PAGE>
Statement of Additional Information
OCC ACCUMULATION TRUST
Equity Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
One World Financial Center
New York, NY 10281
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated May 1, 1999, (the
"Prospectus") of OCC Accumulation Trust (the "Fund"). Contractowners can obtain
copies of the Fund Prospectus by written request to the life insurance company
who issued the Contract at the address delineated in the Variable Account
Prospectus or by calling the life insurance company who issued the Contract at
the telephone number listed in the Variable Account Prospectus.
THE DATE OF THIS ADDITIONAL STATEMENT IS MAY 1, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
Investment of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 15
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . 16
Control Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Management and Other Services. . . . . . . . . . . . . . . 23
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . 27
Dividends, Distribution and Taxes . . . . . . . . . . . . . . . . . . 28
Portfolio Yield and Total Return Information. . . . . . . . . . . . . 28
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . .A-1
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage
obligation may or may not develop and thus, there can be no guarantee of
liquidity of an investment in such obligations. Investments will only be made
in collateralized mortgage obligations which are of high quality, as determined
by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus.
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing basis,
OpCap Advisors (the "Manager") will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. The Portfolios will not invest more than 5% of
their total assets in variable rate notes. Variable rate notes are subject to
the Portfolios' investment restrictions on illiquid securities unless such notes
can be put back to the issuer on demand within seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000.
3
<PAGE>
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 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
securities market in the 1980s had paralleled a long economic expansion,
recently many issuers have been affected by adverse economic and market
conditions. It should be recognized that an economic downturn or increase in
interest rates is likely to have a negative effect on (i) the high yield bond
market, (ii) the value of high yield securities and (iii) the ability of the
securities' issuers to service their principal and interest payment obligations,
to meet their projected business goals or to obtain additional financing. The
market for junk bonds may be less liquid than the market for investment grade
bonds. In periods of reduced market liquidity, junk bond prices may become more
volatile and may experience sudden and substantial price declines. Also, there
may be significant disparities in the prices quoted for junk bonds by various
dealers. Under such conditions, a Portfolio may find it difficult to value its
junk bonds accurately. Under such conditions, a Portfolio may have to use
subjective rather than objective criteria to value its junk bond investments
accurately and rely more heavily on the judgment of the Fund's Board of
Trustees. Prices for junk bonds also may be affected by legislative and
regulatory developments. For example, new federal rules require that savings
and loans gradually reduce their holdings of high-yield securities. Also, from
time to time, Congress has considered legislation to restrict or eliminate the
corporate tax deduction for interest payments or to regulate corporate
restructurings such as takeovers, mergers or leveraged buyouts. Such
legislation, if enacted, may depress the prices of outstanding junk bonds.
DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities 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
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Portfolio's obligation to repurchase the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, 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 marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified security, in
most cases the obligation is fulfilled by closing out the position. All futures
transactions are effected through a clearing house associated with the exchange
on which the contracts are traded. The Global Equity Portfolio may purchase and
sell futures contracts that are currently traded, or may in the future be
traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase, the sum of
initial margin deposits on futures and premiums paid on futures options would
exceed 5% of the Portfolio's total assets. This limitation is not a fundamental
policy.
INFORMATION ON PUTS AND CALLS. The Mid Cap, Balanced, Managed, Small Cap
and Equity Portfolios may write calls on individual securities. The Mid Cap,
Managed, 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 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
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upon the portfolio's entering into a closing purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period (or on a certain date for OTC options) at a fixed exercise
price. A portfolio benefits only if the call is sold at a profit or if, during
the call period, the market price of the underlying investment is above the call
price plus the transaction costs and the premium paid for the call and the call
is exercised. If a call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the portfolio will lose its
premium payment and the right to purchase the underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a transacting
dealer fails to make delivery on the securities underlying an option it has
written, in accordance with the terms of that option as written, a portfolio
could lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Portfolios will engage in OTC option transactions only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. In the event that any OTC option transaction is not
subject to a forward price at which the portfolio has the absolute right to
repurchase the OTC option which it has sold, the value of the OTC option
purchased and of the portfolio assets used to "cover" the OTC option will be
considered "illiquid securities" and will be subject to the 15% limit on
illiquid securities. The "formula" on which the forward price will be based may
vary among contracts with different primary dealers, but it will be based on a
multiple of the premium received by the portfolio for writing the option plus
the amount, if any, of the option's intrinsic value, i.e., current market value
of the underlying securities minus the option's strike price.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium received on a put written by a portfolio represents a profit, as
long as the price of the underlying investment remains above the exercise price.
However, a portfolio has also assumed the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price,
even though the value of the investment may fall below the exercise price. If
the put expires unexercised, the portfolio (as writer) realizes a gain in the
amount of the premium. If the put is exercised, the portfolio must fulfill its
obligation to purchase the underlying investment at the exercise price, which
will usually exceed the market value of the investment at that time. In that
case, the portfolio may incur a loss upon disposition, equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund, on behalf of a portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at least
the exercise price of the option. As a result, the portfolio forgoes the
opportunity of trading the segregated assets or writing calls against those
assets. As long as the portfolio's obligation as a put writer continues, the
portfolio may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring the portfolio to purchase the underlying
security at the exercise price. A portfolio has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. This obligation terminates upon the earlier of the
expiration of the put, or the consummation by the portfolio of a closing
purchase transaction by purchasing a put 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.
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A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase
transaction will permit the portfolio to write another put option to the extent
that the exercise price thereof is secured by the deposited assets, or to
utilize the proceeds from the sale of such assets for other investments by the
portfolio. The portfolio will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the market,
the portfolio could exercise, or sell the put option at a profit that would
offset some or all of its loss on the portfolio securities. If the market price
of the underlying investment is above the exercise price and as a result, the
put is not exercised, the put will become worthless at its expiration date and
the purchasing portfolio will lose the premium paid and the right to sell the
underlying securities; the put may, however, be sold prior to expiration
(whether or not at a profit). Purchasing a put on futures or securities not
held by it permits a portfolio to protect its securities holdings against a
decline in the market to the extent that the prices of the future or securities
underlying the put move in a similar pattern to the prices of a portfolio's
securities.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. A portfolio's
option activities may affect its turnover rate and brokerage commissions. The
exercise of calls written by a portfolio may cause the portfolio to sell its
securities to cover the call, thus increasing its turnover rate in a manner
beyond the portfolio's control. The exercise of puts on securities or futures
will increase portfolio turnover. Although such exercise is within the
portfolio's control, holding a put might cause a portfolio to sell the
underlying investment for reasons which would not exist in the absence of the
put. A portfolio will pay a brokerage commission every time it purchases or
sells a put or a call or purchases or sells a related investment in connection
with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Balanced, Managed, Mid Cap, Small
Cap and Equity Portfolios may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid)
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time during the term of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option is accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price
of the futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
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
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prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Portfolio's losses from existing
options may to some extent be reduced or increased by changes in the value of
its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For example,
a Portfolio may purchase a put option on a futures contract to hedge the
Portfolio's holdings against the risk of a decline in securities prices.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will be
required to deposit with its broker an amount of cash or U.S. Treasury bills
equal to approximately 5% of the contract amount. This is known as initial
margin. Such initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may be
required to make additional payments during the term of the contract to its
broker. Such payments would be required where during the term of a stock index
futures contract purchased by the Portfolio, the price of the underlying stock
index declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by the
Portfolio resulting in a net long position, an amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's custodian, for the benefit of the
Portfolio, to collateralize the position and thereby insure that the use of such
futures is unleveraged. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking an opposite
position which will operate to terminate the Portfolio's position in the futures
contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the 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
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direction, the Portfolio would be in a better position than if it had not hedged
at all. If the price of the securities being hedged has moved in a favorable
direction this advantage will be partially offset by the future. If the price
of the futures moves more than the price of the stock the Portfolio will
experience a loss or a gain on the future which will not be completely offset by
movement in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index futures, the
Portfolio may buy or sell stock index futures in a greater dollar amount than
the dollar amount of the securities being hedged if the historical volatility of
the prices of such securities has been greater than the historical volatility of
the index. Conversely, the Portfolio may buy or sell fewer stock index futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the stock index. It is
possible that where the Portfolio has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the Portfolio's
securities may deline. If this occurred, the Portfolio would lose money on the
futures and also experience a decline in the value of its securities. While
this should occur, if at all, for a very brief period or to a very small degree,
the Manager believes that over time the value of a diversified portfolio will
tend to move in the same direction as the market indices upon which the futures
are based. It is also possible that if the Portfolio hedges against the
possibility of a decline in the market adversely affecting stocks it holds and
stock prices increase instead, the Portfolio will lose part or all of the
benefit of the increased value of its stock which it had hedged because it will
have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Portfolio may also have to sell securities at a
time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index and
futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, the value of stock index futures contracts as a
hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures
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contracts have been used to hedge a portfolio's securities, such securities will
not be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if any, may partially
or completely offset losses on the futures contract. However, as described
above, there is no guarantee that the price of securities will, in fact,
correlate with the price movements in the futures contract and thus provide an
offset to losses on a futures contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets. Each Portfolio may use futures and options
thereon for bona fide hedging or for other purposes within the meaning and
intent of the applicable provisions of the CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends
to qualify as a "regulated investment company" under the Internal Revenue
Code. One of the tests for such qualification is that at least 90% of its
gross income must be derived from dividends, interest and gains from the sale
or other disposition of securities. In connection with the 90% test,
amendments to the Internal Revenue Code specify that income from options,
futures and other gains derived from 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
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(taxable as ordinary income) and/or increasing the amount of dividends that must
be distributed annually to meet income distribution requirements, currently at
98%, to avoid payment of federal excise tax.
It should also be noted that under certain circumstances, the acquisition
of positions in hedging instruments may result in the elimination or suspension
of the holding period for tax purposes of other assets held by a portfolio with
the result that the relative proportion of short-term capital gains (taxable as
ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect to
futures and options discussed in the Prospectus and above, there is a risk in
selling futures that the prices of futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of a portfolio's securities.
The ordinary spreads between prices in the cash and futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Moreover, if the Manager's investment judgment about the general
direction of securities prices is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish a
position in the market as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures or on a
particular security, it is possible that the market may decline. If the
portfolio then concludes not to invest in such securities at that time because
of concerns as to possible further market decline or for other reasons, it will
realize a loss on the Hedging Instruments that is not offset by a reduction in
the price of the securities purchased.
INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Balanced, Mid Cap, Small Cap and
Managed Portfolios may purchase foreign securities provided that they are listed
on a domestic or foreign securities exchange or represented by American
depository receipts listed on a domestic securities exchange or traded in a
domestic or foreign over-the-counter market. There is no limit on the amount of
such foreign securities that the Portfolios might acquire. These Portfolios
will hold foreign currency in connection with the purchase or sale of securities
on a foreign securities exchange. To the extent that foreign currency is so
held, there may be a risk due to foreign currency exchange rate fluctuations.
Such foreign currency and foreign securities will be held by the Fund's
custodian bank, or by a foreign branch of a U.S. bank, acting as subcustodian,
on behalf of the Portfolio. The custodian bank will hold such foreign
securities pursuant to such arrangements as are permitted by applicable foreign
and domestic law and custom.
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment
may be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
connection with the exchange of currency. There may be less publicly available
information about a foreign company than about 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
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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 Global Equity, Balanced, Equity, Mid
Cap, Small Cap and Managed Portfolios do not intend to speculate in foreign
currency. When a Portfolio agrees to purchase or sell a security in a foreign
market it will generally be obligated to pay or entitled to receive a specified
amount of foreign currency and will then generally convert dollars to that
currency in the case of a purchase or that currency to dollars in the case of a
sale. The Global Equity, Balanced, Mid Cap, Equity, Small Cap and Managed
Portfolios intend to conduct their foreign currency exchange transactions on a
spot basis (i.e., cash) at the spot rate prevailing in the foreign currency
exchange market or through entering into forward foreign currency contracts
("forward contracts") to purchase or sell foreign currencies. Such Portfolios
may enter into forward contracts in order to lock in the U.S. dollar amount they
must pay or expect to receive for a security they have agreed to buy or sell or
with respect to their positions when the Portfolios believe that a particular
currency may change unfavorably compared to the U.S. dollar. A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating them to purchase, on
the same settlement date, the same amount of foreign currency.
12
<PAGE>
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, futures contracts that are not "regulated futures contracts," and
from unlisted options will be treated as ordinary income or loss under
Internal Revenue Code Section 988. Also, certain foreign exchange gains or
losses derived with respect to fixed-income securities are also subject to
Section 988 treatment. In general, 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 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).
13
<PAGE>
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.
FOREIGN AND DOMESTIC SECURITY SELECTION PROCESS. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets, security selection is
designed to reduce risk through a value oriented approach in which emphasis is
placed on identifying well-managed companies which, in the case of the Global
Equity Portfolio, represent exceptional values in terms of such factors as
assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively, except that these limits do not apply if a portfolio is acquiring
securities of an investment company in the same group of investment companies,
the portfolio only invests in securities of other investment companies that are
part of the same group, government securities and short-term paper; sales or
distribution charges are charged only at one of the acquired or acquiring
investment companies and the acquired company has a policy restricting it from
investing in securities of other investment companies under these exceptions.
To the extent a Portfolio invests in securities in bearer form it may be more
difficult to recover securities in the event such securities are lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. Under the Taxpayer Relief Act of
1997, a mark-to-market regime was established that allows a regulated investment
company ("RIC") to avoid most, if not all, of the difficulties posed by the
PFIC rules. In any event, it is not anticipated that any taxes on a Portfolio
with respect to investments in PFIC's would be significant.
14
<PAGE>
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:
1. Invest more than 5 percent of the value of its total assets in the
securities of any one issuer, or purchase more than 10 percent of the voting
securities, or more than 10 percent of any class of security, of any issuer (for
this purpose all outstanding debt securities of an issuer are considered as one
class and all preferred stock of an issuer are considered as one class).
2. Concentrate its investments in any particular industry, but if deemed
appropriate for attaining its investment objective, a Portfolio may invest up to
25 percent of its total assets (valued at the time of investment) in any one
industry classification used by that Portfolio for investment purposes.
3. Invest more than 5 percent of the value of its total assets in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation.
4. 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
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.
15
<PAGE>
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.
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 its Prospectus or Statement of Additional Information 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.
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.
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
16
<PAGE>
Fund's activities, review its performance, and review the actions of OpCap
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 One
World Financial Center, New York, New York 10281, 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.
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
17
<PAGE>
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, 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.
ROBERT BRAULT, ASSISTANT TREASURER
Age: 33
Vice President of Oppenheimer Capital since 1997; joined Oppenheimer Capital
in 1989; Assistant Treasurer of OCC Cash Reserves, Inc., an open-end
investment company and Assistant Treasurer of the Central European Value
Fund, Inc. and Municipal Advantage Fund Inc., closed-end investment companies.
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
President of OpCap Advisors and a Managing Director of Oppenheimer Capital; Vice
President of OCC Cash Reserves, Inc., an open-end investment company and
President of The Central European Value Fund, Inc. and Municipal Advantage Fund
Inc., closed-end investment companies.
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.
18
<PAGE>
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.
DEBORAH KABACK, SECRETARY
Age: 47
Senior Vice President, Deputy General Counsel and Secretary, Oppenheimer
Capital; Secretary of OCC Cash Reserves, Inc., an open-end investment company
and Secretary of The Central European Value Fund, Inc. and Municipal Advantage
Fund Inc., closed-end investment companies.
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.
RICHARD L. PETEKA, TREASURER
Age: 37
Vice President, 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.
EILEEN ROMINGER, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 44
Managing Director, Oppenheimer Capital.
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. All officers of the Fund are
officers of Oppenheimer Capital and will receive no salary or fee from the Fund.
The following table sets forth the aggregate compensation paid by the Fund to
each of the Trustees during its fiscal year ended December 31, 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.
19
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ESTIMATED FROM THE FUND, OCC
NAME OF COMPENSATION ACCRUED AS ANNUAL CASH RESERVES AND
TRUSTEE FROM THE PART OF FUND BENEFITS UPON SIX OPPENHEIMER
OF THE FUND FUND EXPENSES RETIREMENT QUEST FUNDS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul Clinton $27,950 0 0 $139,995
- -------------------------------------------------------------------------------
Thomas
Courtney $27,950 0 0 $130,779
- -------------------------------------------------------------------------------
Lacy Herrmann $27,950 0 0 $143,653
- -------------------------------------------------------------------------------
Joseph La
Motta 0 0 0 0
- -------------------------------------------------------------------------------
George Loft $27,950 0 0 $146,129
- -------------------------------------------------------------------------------
</TABLE>
For the purpose of the chart above, "Fund Complex" includes the Fund, other
funds advised by the Advisor and the Oppenheimer Quest Funds for which the
Advisor serves as subadviser.
Total compensation includes accrued retirement benefits and fees paid by
the Oppenheimer Quest Funds for which OpCap Advisors acts as subadviser. The
Oppenheimer Quest Funds are not affiliated with OpCap Advisors. The amount of
total compensation paid to the independent Directors by the Oppenheimer Quest
Funds was as follows: Mr. Clinton: $76,545 in fees and accrued retirement
benefits; Mr. Courtney: $67,329 in fees and accrued retirement benefits; Mr.
Herrmann: $80,203 in fees and accrued retirement benefits; and Mr. Loft:
$82,679 in fees and accrued retirement benefits.
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.
20
<PAGE>
CONTROL PERSONS
As of March 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 MARCH 31, 1999(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PORTFOLIOS
- --------------------------------------------------------------------------------
SHAREHOLDERS U.S. GLOBAL EQUITY SMALL MANAGED MID CAP
GOVT. EQUITY CAP
INCOME
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Mutual Life 14.97% 5.92% 1.77% 5.58%
Insurance
Company of New
York (New York,
NY) & The MONY
Life Insurance
Company of
America
1740 Broadway
NY, NY 10019
- --------------------------------------------------------------------------------
Provident 49.49% 12.05% 8.19%
Mutual Life
Insurance
Company &
Providentmutual
Life and
Annuity Company
of America
1600 Market St.
Philadelphia,
PA 19103
- --------------------------------------------------------------------------------
Connecticut .31% 5.82% 3.51%
General Life
Insurance
Company & CIGNA
Life Insurance
Company
350 Church
Street
MLW 1, 12th
Flr.
Hartford, CT
06103-1106
- --------------------------------------------------------------------------------
Providian Life 28.61% 6.32% 2.82%
and Health
Insurance
Company
400 West Market
Street,
Louisville, KY
40202
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
American 56.42% 2.86% 1.14% 1.75%
Enterprise Life
Insurance
Company and
American
Centurion Life
Insurance
Company
80 South Eighth
Street,
Minneapolis, MN
55402
- --------------------------------------------------------------------------------
Oppenheimer 38.18%
Capital
One World
Financial
Center, 200
Liberty Street,
New York, NY
10281
- --------------------------------------------------------------------------------
IL Annuity and 2.44% 2.98%
Insurance
Company 2960
North Meridian
Street,
Indianapolis,
IN 46208
- --------------------------------------------------------------------------------
PRUCO Life 55.65% 58.82%
Insurance
Company of New
Jersey and
PRUCO Life
Insurance
Company 751
Broad Street,
Newark, NJ
07102
- --------------------------------------------------------------------------------
Transamerica .35% .39%
Transamerica
Center 1150
Olive Street,
Los Angeles, CA
90015
- --------------------------------------------------------------------------------
ReliaStar Life 5.75% 14.27% 5.75% 4.82%
Insurance
Company
20 Washington
Avenue South,
Route 1237,
Minneapolis, MN
55401
- --------------------------------------------------------------------------------
Sun Life of 10.93% .76% .04% 61.82%
Canada (U.S.)
Copley Place,
Suite 200,
Boston, MA
02117
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
Travelers 16.22%
Insurance
Company
One Tower
Square,
Hartford, CT
06183
- --------------------------------------------------------------------------------
Lincoln Life 94.25% 7.95% 11.10%
Insurance
Company
1300 South
Clinton Street
Fort Wayne, IN
46802
- --------------------------------------------------------------------------------
</TABLE>
(1)This chart lists all Variable Account shareholders of record of the
Portfolios as of March 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 March 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 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, 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 Advisors L.P. ("PIMCO
Advisors"), a registered investment adviser. The general partners of PIMCO
Advisors 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
Advisors. PIMCO Partners, G.P. is the sole general partner of PIMCO Advisors
Holdings L.P.
THE ADVISORY AGREEMENT. OpCap Advisors provides investment advisory and
management services to the Fund pursuant to an Advisory Agreement dated November
5, 1997. The new Advisory Agreement was amended on February 1, 1998 to provide
that the Manager will limit total operating expenses of all Portfolios of the
Fund except the Global Equity Portfolio to 1.00% (net of any expense offsets) of
their respective average daily net assets and that the Manager will limit total
operating expenses of the Global Equity Portfolio to 1.25%
23
<PAGE>
(net of any expense offsets) of its average daily net assets.
Under the Advisory Agreement, the Manager is required to: (i) regularly
provide investment advice and recommendations to each Portfolio of the Fund with
respect to its investments, investment policies and the purchase and sale of
securities; (ii) supervise continuously and determine the securities to be
purchased or sold by the Fund and the portion, if any, of the assets of each
Portfolio of the Fund to be held uninvested; and (iii) arrange for the purchase
of securities and other investments by each Portfolio of the Fund and the sale
of securities and other investments held by each Portfolio of the Fund.
The Advisory Agreement also requires the Manager to provide administrative
services for the Fund, including (1) coordination of the functions of
accountants, counsel and other parties performing services for the Fund and (2)
preparation and filing of reports required by federal securities and "blue sky"
laws, shareholder reports and proxy materials.
Expenses not expressly assumed by the Manager under the Advisory Agreement
or by OCC Distributors (the "Distributor") are paid by the Fund. The Advisory
Agreement lists examples of expenses paid by the Fund, of which the major
categories relate to interest, taxes, fees to non-interested trustees, legal and
audit expenses, custodian and transfer agent expenses, stock issuance costs,
certain printing and registration costs, and non-recurring expenses, including
litigation.
The Distributor is located at One World Financial Center, New York, New
York 10281 and serves as the general distributor for the Fund pursuant to a
General Distributors Agreement dated November 5, 1997. Deborah Kaback,
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, 1996, the total advisory fees
accrued or paid by the Equity, Managed, Small Cap, U.S. Government Income and
Global Equity Portfolios were $109,057, $972,381, $165,735, $14,797 and $71,811,
respectively, of which $18,150, $8,220, $17,823, $14,797 and $37,689, was waived
by the Manager. In addition, the Manager reimbursed operating expenses of
$19,305 for the U.S. Government Income Portfolio. For the fiscal year ended
December 31, 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 Manager 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 Manager with
respect to the U.S. Government Income Portfolio and the Mid Cap Portfolio.
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. The
24
<PAGE>
advisory fee for the U.S. Government Income Portfolio is at the annual rate of
.60% of average daily net assets.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Manager is not liable for any act or omission in the course of,
or in connection with, the rendition of services thereunder. The Agreement
permits the Manager to act as investment advisor for any other person, firm, or
corporation.
PORTFOLIO TRANSACTIONS. Portfolio decisions are based upon recommendations
of the Manager and the judgment of the portfolio managers. As most, if not all,
purchases made by the U.S. Government Income 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 Manager; information received in connection with directed orders
of other accounts managed by the Manager or its affiliates may or may not be
useful to the Fund. Such information may be in written or oral form and
includes information on particular companies and industries as well as market,
economic or institutional activity areas. It serves to broaden the scope and
supplement the research activities of the Manager, to make available additional
views for consideration and comparison, and to enable the Manager to obtain
market information for the valuation of securities held by the Fund. For the
year ended December 31, 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, 1996 and for the year
ended December 31, 1997.
25
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------
TOTAL BROKERAGE
PORTFOLIO COMMISSIONS PAID
- --------------------------------------
- --------------------------------------
1996 1997
- --------------------------------------
<S> <C> <C>
EQUITY $14,116 $21,025
- --------------------------------------
MANAGED 107,123 224,795
- --------------------------------------
SMALL CAP 52,990 213,701
- --------------------------------------
GLOBAL EQUITY 41,242 49,976
- --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BROKERAGE COMMISSIONS
PORTFOLIO PAID TO CIBC OPPENHEIMER
- --------------------------------------------------------------------------------
$ AMOUNTS %
- --------------------------------------------------------------------------------
1996 1997 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY $ 5,743 $5,221 40.7 24.8
- --------------------------------------------------------------------------------
MANAGED 61,183 82,229 57.1 36.6
- --------------------------------------------------------------------------------
SMALL CAP 23,565 76,787 44.5 35.9
- --------------------------------------------------------------------------------
GLOBAL EQUITY 4,563 4,675 11.1 9.4
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TOTAL AMOUNT OF TRANSACTIONS
PORTFOLIO WHERE BROKERAGE COMMISSIONS PAID TO CIBC OPPENHEIMER
- --------------------------------------------------------------------------------
$ AMOUNTS %
- --------------------------------------------------------------------------------
1996 1997 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY $5,747,719 $4,578,999 50.5 32.9
- --------------------------------------------------------------------------------
MANAGED 50,188,690 78,122,478 59.0 36.2
- --------------------------------------------------------------------------------
SMALL CAP 8,870,059 32,932,369 45.4 38.1
- --------------------------------------------------------------------------------
GLOBAL EQUITY 4,995,531 5,840,385 33.6 27.0
- --------------------------------------------------------------------------------
</TABLE>
(1)The Fund did not effect principal transactions with CIBC Oppenheimer while it
was an affiliated broker-dealer. When the Fund effects principal transactions
with other broker-dealers commissions are imputed.
The Manager and its parent 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 advisor to others. It is the practice
of the Manager to cause purchase or sale transactions to be allocated among the
Fund and others whose assets it or Oppenheimer Capital manages in such manner as
it deems equitable. In making such allocations among the Fund and other client
accounts, the main factors considered are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the persons responsible for managing each
portfolio of the Fund and other client accounts. When orders to purchase or
sell the same security on identical terms are placed by more than one of the
funds and/or other advisory accounts managed by the Manager or its affiliates,
the transactions are generally executed as received, although a fund or advisory
account that does not direct trades to a specific broker ("free trades") usually
will have its order executed first. Purchases are combined where possible for
the purpose of negotiating brokerage commissions, which in some cases might have
a detrimental effect on the price or
26
<PAGE>
volume of the security in a particular transaction as far as the Fund is
concerned. Orders placed by accounts that direct trades to a specific broker
will generally be executed after the free trades. All orders placed on behalf
of the Fund are considered free trades. However, having an order placed first
in the market does not necessarily guarantee the most favorable price.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each of the Portfolios of the Fund is
determined each day the New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the NYSE that day, by dividing the value
of the Fund's net assets by the number of shares outstanding. The NYSE's most
recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Presidents' Day, Martin Luther King's Birthday, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving and Christmas Day. It
may also close on other days.
Securities listed on a national securities exchange or designated national
market system securities are valued at the last reported sale price on that day,
or, if there has been no sale on such day or on the previous day on which the
Exchange was open (if a week has not elapsed between such days), then the value
of such security is taken to be the reported bid price at the time as of which
the value is being ascertained. Securities actively traded in the
over-the-counter market but not designated as national market system securities
are valued at the last quoted bid price. Any securities or other assets for
which current market quotations are not readily available are valued at their
fair value as determined in good faith under procedures established by and under
the general supervision and responsibility of the Fund's Board of Trustees. The
value of a foreign security is determined in its national currency and that
value is then converted into its U.S. dollar equivalent at the foreign exchange
rate in effect on the date of valuation.
The Fund's Board of Trustees has approved the use of nationally recognized
bond pricing services for the valuation of each Portfolio's debt securities.
The service selected by the Manager creates and maintains price matrices of U.S.
Government and other securities from which individual holdings are valued
shortly after the close of business each trading day. Debt securities not
covered by the pricing service are valued based upon bid prices obtained from
dealers who maintain an active market therein or, if no readily available market
quotations are available from dealers, such securities (including restricted
securities and OTC options) are valued at fair value under the Board of
Trustees' procedures. Short-term (having a remaining maturity of more than
sixty days) debt securities are valued on a "marked-to-market" basis, that is,
at prices based upon market quotations for securities of similar type, yield,
quality and maturity. Short-term (having a maturity of 60 days or less) debt
securities are valued at amortized cost or value.
Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the spread
between the closing bid and asked prices on the valuation date. Futures are
valued based on their daily settlement value. When a Portfolio writes a call,
an amount equal to the premium received is included in the Portfolio's Statement
of Assets and Liabilities as an asset, and an equivalent credit is included in
the liability section. The credit is adjusted ("marked-to-market") to reflect
the current market value of the call. If a call written by a Portfolio is
exercised, the proceeds on the sale of the underlying securities are increased
by the premium received. If a call or put written by a Portfolio
27
<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.
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.
28
<PAGE>
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1998 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
U.S. GOVERNMENT INCOME PORTFOLIO 4.58%
-----
Current yield is calculated according to the following formula:
x 6
YIELD=2(--- + 1) -1
cd
--------------------
Where:
x = daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield does not reflect capital gains or losses, non-recurring or irregular
income. Gain or loss attributable to actual monthly paydowns on mortgage or
other receivables-backed obligations purchased at a discount or premium is
reflected as an increase or decrease in interest income during the period.
A Portfolio's average annual total return represents an annualization of
the Portfolio's total return ("T" in the formula below), over a particular
period and is computed by finding the current percentage rate which will result
in the ending redeemable value ("ERV" in the formula below) of a $1,000
investment, ("P" in the formula below) made at the beginning of a one, five or
ten year period, or for the period from the date of commencement of the
Portfolio's operation, if shorter ("N" in the formula below). The following
formula will be used to compute the average annual total return for each
Portfolio (other than the Money Market Portfolio):
N
P (1 + T) = ERV
In addition to the foregoing, each Portfolio may advertise its total return
over different periods of
29
<PAGE>
time by means of aggregate, average, year by year or other types of total return
figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
In addition to average annual returns, each Portfolio may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments and/or a series of redemptions over
any time period. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indices including but not limited to the
S&P 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 FOR THE FIVE YEAR FOR THE PERIOD
PORTFOLIO PERIOD ENDED PERIOD ENDED FROM INCEPTION TO
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998*
- ---------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
EQUITY 11.86% 20.28% 17.00%
MID CAP N/A N/A (1.62)%
MANAGED 7.12% 19.15% 18.99%
SMALL CAP (9.03)% 8.53% 12.85%
U.S. GOVERNMENT INCOME 8.15% N/A 7.78%
GLOBAL EQUITY 13.29% N/A 15.96%
</TABLE>
30
<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 and
the inception date of the Mid Cap Portfolio is February 9, 1998. 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.
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
claim made against any shareholder for any act or obligation of the Fund and
shall satisfy any judgment thereon.
31
<PAGE>
Thus, while Massachusetts law permits a shareholder of a trust (such as the
Fund) to be held personally liable as a partner under certain circumstances, the
risk of a shareholder incurring any financial loss on account of shareholder
liability is limited to the relatively remote circumstance in which the Fund
itself would be unable to meet the obligations described above.
POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses would be
allocated fairly among two or more Portfolios by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
independent accountants. The Rule contains special provisions for cases in
which an advisory agreement is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series.
DISTRIBUTION AGREEMENT. Under the Distribution Agreement between each
Portfolio and the Distributor, the Distributor acts as the Portfolio's agent in
the continuous public offering of its shares. Expenses normally attributed to
sales, including advertising and the cost of printing and mailing prospectuses
other than those furnished to existing shareholders, are borne by the
Distributor.
INDEPENDENT ACCOUNTANTS. 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.
32
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTE -- 2.6%
$ 1,300,000 Federal Home Loan Bank,
4.30%, 1/4/99
(cost -- $1,299,534) $ 1,299,534
------------
SHORT-TERM CORPORATE NOTES -- 15.9%
AUTOMOTIVE -- 3.6%
1,755,000 Ford Motor Credit Corp.,
5.31%, 1/11/99 1,752,411
------------
MACHINERY/ENGINEERING -- 4.1%
2,000,000 Deere & Co.,
5.46%, 1/7/99 1,998,180
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.7%
760,000 American Express Credit Corp.,
5.15%, 1/15/99 758,478
Household Finance Corp.
205,000 5.08%, 1/19/99 204,479
1,300,000 5.37%, 1/8/99 1,298,643
------------
2,261,600
------------
OIL/GAS -- 3.5%
1,720,000 Chevron Oil Finance Co.,
5.30%, 1/12/99 1,717,215
------------
Total Short-Term Corporate Notes
(cost -- $7,729,406) 7,729,406
------------
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 84.7%
ADVERTISING -- 3.6%
14,600 Omnicom Group 846,800
15,000 WPP Group plc ADR 926,250
------------
1,773,050
------------
AEROSPACE/DEFENSE -- 4.4%
33,000 AlliedSignal, Inc. 1,462,312
12,000 General Dynamics Corp. 703,500
------------
2,165,812
------------
AUTOMOTIVE -- 2.9%
42,560 LucasVarity Corp. plc ADR 1,425,760
------------
BANKING -- 5.5%
15,000 BankBoston Corp. 584,063
17,390 Citigroup, Inc. 860,805
30,330 Wells Fargo & Co. 1,211,304
------------
2,656,172
------------
CHEMICALS -- 1.3%
12,000 du Pont (E.I.) de Nemours & Co. 636,750
------------
COMPUTER SERVICES -- 1.1%
12,000 Sabre Group Holdings, Inc.* 534,000
------------
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
CONGLOMERATES -- 6.2%
19,000 Minnesota Mining & Manufacturing Co. $ 1,351,375
22,000 Textron, Inc. 1,670,625
------------
3,022,000
------------
CONSUMER PRODUCTS -- 2.5%
27,000 Avery Dennison Corp. 1,216,687
------------
DRUGS & MEDICAL PRODUCTS -- 1.6%
18,084 Becton, Dickinson & Co. 771,961
------------
ELECTRONICS -- 4.8%
10,000 Avnet, Inc. 605,000
4,000 Conexant Systems, Inc. (1)* 67,000
42,000 Rockwell International Corp. (2) 1,687,875
------------
2,359,875
------------
FOOD SERVICES -- 3.3%
12,715 Diageo plc ADR 588,069
13,500 McDonald's Corp. 1,034,437
------------
1,622,506
------------
HEALTH & HOSPITALS -- 1.6%
28,750 Tenet Healthcare Corp.* 754,688
------------
INSURANCE -- 19.5%
56,100 ACE Ltd. 1,931,944
14,744 AFLAC, Inc. 648,736
2,839 American International Group, Inc. 274,318
420 Berkshire Hathaway, Inc. (Class B) 987,000
41,161 Conseco, Inc. 1,257,983
42,000 Everest Reinsurance Holdings, Inc. 1,635,375
30,602 EXEL Ltd. 2,295,150
13,000 RenaissanceRe Holdings Ltd. 476,125
------------
9,506,631
------------
LEISURE -- 1.7%
17,000 Carnival Corp. 816,000
------------
MACHINERY/ENGINEERING -- 5.0%
16,000 Caterpillar, Inc. 736,000
46,000 Dover Corp. 1,684,750
------------
2,420,750
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.5%
19,912 Countrywide Credit Industries, Inc. 999,334
18,620 Federal Home Loan Mortgage Corp. 1,199,826
------------
2,199,160
------------
PRINTING/PUBLISHING -- 2.4%
9,000 Donnelley (R.R.) & Sons Co. 394,313
24,000 Reed International plc ADR 756,000
------------
1,150,313
------------
RETAIL -- 2.0%
15,888 May Department Stores Co. 959,238
------------
TECHNOLOGY -- 0.8%
9,000 Computer Associates International, Inc. 383,625
------------
</TABLE>
* Non-income producing security
(1) Shares distributed to holders of Rockwell International Corp.
on January 4, 1999.
(2) Value shown net of spin-off of Conexant Systems, Inc. on
January 4, 1999.
A-1
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 2.9%
14,000 Motorola, Inc. $ 854,875
6,000 Sprint Corp. (FON Group) 504,750
3,000 Sprint Corp. (Pcs Group)* 69,375
------------
1,429,000
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 3.4%
31,000 Philip Morris Cos., Inc. 1,658,500
------------
TRANSPORTATION -- 3.7%
23,600 AMR Corp.* 1,401,250
21,000 Canadian Pacific Ltd. 396,375
------------
1,797,625
------------
Total Common Stocks
(cost -- $32,064,612) 41,260,103
------------
Total Investments
(cost -- $41,093,552) 103.2% $ 50,289,043
Liabilities in Excess of Other Assets (3.2) (1,578,332)
----- ------------
Total Net Assets 100.0% $ 48,710,711
===== ============
SMALL CAP PORTFOLIO
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTE -- 0.6%
965,000 Federal Home Loan Bank,
4.30%, 1/4/99
(cost -- $964,654) 964,654
------------
SHORT-TERM CORPORATE NOTES -- 12.0%
AUTOMOTIVE -- 4.1%
Ford Motor Credit Corp.,
2,335,000 5.28%, 1/8/99 2,332,603
4,025,000 5.41%, 1/5/99 4,022,580
------------
6,355,183
------------
MACHINERY/ENGINEERING -- 3.8%
693,000 Deere & Co.,
5.32%, 1/11/99 691,976
5,180,000 Deere (John) Capital Corp.,
5.24%, 1/11/99 5,172,460
------------
5,864,436
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.0%
5,235,000 American Express Credit Corp.,
5.05%, 1/12/99 5,226,922
1,000,000 Norwest Financial Inc.,
5.50%, 1/22/99 996,792
------------
6,223,714
------------
TECHNOLOGY -- 0.1%
110,000 IBM Credit Corp.,
5.17%, 1/19/99 109,716
------------
Total Short-Term Corporate Notes
(cost -- $18,553,049) 18,553,049
------------
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 87.3%
AGRICULTURE -- 1.0%
50,600 Agribrands International, Inc.* $ 1,518,000
------------
AUTOMOTIVE -- 2.4%
65,500 Borg-Warner Automotive, Inc. 3,655,719
------------
CHEMICALS -- 8.3%
153,200 Hanna (M.A.) Co. 1,886,275
55,900 McWhorter Technologies, Inc.* 1,278,712
161,200 Schulman (A.), Inc. 3,657,225
230,000 TETRA Technologies, Inc.* 2,525,469
225,700 Triarc Companies, Inc.* 3,611,200
------------
12,958,881
------------
COMPUTER SERVICES -- 4.2%
176,767 BancTec, Inc.* 2,220,635
164,300 Wallace Computer Services, Inc. 4,333,413
------------
6,554,048
------------
CONGLOMERATES -- 1.9%
162,000 GP Strategies Corp.* 2,430,000
29,300 U.S. Industries, Inc. 545,712
------------
2,975,712
------------
CONTAINERS -- 0.2%
15,000 AEP Industries, Inc.* 326,250
------------
DRUGS & MEDICAL PRODUCTS -- 1.2%
30,200 Dentsply International, Inc. 777,650
66,000 Vital Signs, Inc. 1,155,000
------------
1,932,650
------------
ELECTRONICS -- 6.8%
87,900 CTS Corp. 3,823,650
165,400 Exar Corp.* 2,667,075
219,500 General Semiconductor, Inc.* 1,797,156
14,700 Oak Industries, Inc.* 514,500
54,800 Technitrol, Inc. 1,746,750
------------
10,549,131
------------
ENERGY -- 5.0%
106,100 Basin Exploration, Inc.* 1,332,881
138,000 Cabot Oil & Gas Corp. 2,070,000
250,700 KCS Energy, Inc. 767,769
99,800 Nuevo Energy Co.* 1,147,700
135,400 St. Mary Land & Exploration Co. 2,504,900
------------
7,823,250
------------
HEALTH & HOSPITALS -- 7.3%
240,200 American Medical Security
Group, Inc. 3,437,863
65,600 Corvel Corp.* 2,312,400
230,000 Magellan Health Services, Inc.* 1,926,250
47,400 Trigon Healthcare, Inc.* 1,768,612
222,500 United Wisconsin Services, Inc. 1,932,969
------------
11,378,094
------------
</TABLE>
* Non-income producing security
A-2
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE -- 18.6%
157,500 Annuity & Life Re Holdings Ltd. $ 4,252,500
128,600 Chartwell Re Corp. 3,054,250
168,000 CNA Surety Corp. 2,646,000
70,100 Delphi Financial Group, Inc. (Class A) 3,675,869
122,600 Enhance Financial Services Group, Inc. 3,678,000
70,700 E.W. Blanch Holdings, Inc. 3,353,831
27,900 Horace Mann Educators Corp. 795,150
122,500 RenaissanceRe Holdings Ltd. 4,486,562
117,900 Terra Nova (Bermuda) Holdings Ltd. 2,976,975
------------
28,919,137
------------
MACHINERY/ENGINEERING -- 3.0%
109,246 Albany International Corp. 2,068,847
155,500 Flowserve Corp. 2,575,469
------------
4,644,316
------------
MANUFACTURING -- 6.3%
135,700 Artesyn Technologies, Inc.* 1,899,800
224,200 Baldwin Technology, Inc. (Class A)* 1,261,125
212,000 Guilford Mills, Inc. 3,537,750
187,700 Lydall, Inc.* 2,228,938
20,100 Precision Castparts Corp. 889,425
------------
9,817,038
------------
PRINTING/PUBLISHING -- 3.0%
338,700 Hollinger International, Inc. 4,720,631
------------
REAL ESTATE -- 0.1%
5,689 Security Capital Group, Inc. (Class B)* 77,157
------------
TECHNOLOGY -- 10.7%
58,500 Adaptec, Inc.* 1,027,406
82,900 Harman International Industries, Inc. 3,160,563
147,800 Unitrode Corp.* 2,586,500
153,500 Volt Information Sciences, Inc.* 3,463,344
229,400 Wang Laboratories, Inc.* 6,365,850
------------
16,603,663
------------
TEXTILES/APPAREL -- 3.4%
411,800 Paxar Corp.* 3,680,462
49,500 Westpoint Stevens, Inc. * 1,562,344
------------
5,242,806
------------
TRANSPORTATION -- 3.9%
154,600 Air Express International Corp. 3,362,550
163,650 Interpool, Inc. 2,741,138
------------
6,103,688
------------
Total Common Stocks
(cost -- $139,676,683) 135,800,171
------------
Total Investments
(cost -- $159,194,386) 99.9% $155,317,874
Other Assets in Excess of Liabilities 0.1 188,060
----- ------------
Total Net Assets 100.0% $155,505,934
===== ============
<CAPTION>
MANAGED PORTFOLIO
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTES -- 0.3%
$ 800,000 Federal Farm Credit Bank,
5.06%, 1/12/99 $ 798,763
1,135,000 Federal Home Loan Bank,
5.125%, 1/22/99 1,131,607
------------
Total U.S. Government Agency Notes
(cost -- $1,930,370) 1,930,370
------------
SHORT-TERM CORPORATE NOTES -- 17.7%
AUTOMOTIVE -- 3.7%
Ford Motor Credit Corp.,
1,865,000 4.88%, 2/1/99 1,857,163
4,565,000 5.26%, 1/11/99 4,558,330
18,250,000 5.41%, 1/5/99 18,239,030
3,910,000 General Motors Acceptance Corp.,
5.28%, 1/5/99 3,907,706
------------
28,562,229
------------
INSURANCE -- 2.8%
21,975,000 Prudential Funding Corp.,
4.70%, 2/4/99 21,877,455
------------
MACHINERY/ENGINEERING -- 3.5%
27,400,000 Deere (John) Capital Corp.,
5.24%, 1/11/99 27,360,118
------------
MISCELLANEOUS FINANCIAL SERVICES -- 1.1%
1,100,000 American Express Credit Corp.,
5.15%, 1/15/99 1,097,797
7,470,000 Household Finance Corp.,
5.08%, 1/19/99 7,451,026
------------
8,548,823
------------
OIL/GAS -- 2.5%
19,305,000 Chevron USA, Inc.,
5.30%, 1/12/99 19,273,737
------------
TECHNOLOGY -- 4.1%
31,930,000 IBM Credit Corp.,
5.17%, 1/19/99 31,847,461
------------
Total Short-Term Corporate Notes
(cost -- $137,469,823) 137,469,823
------------
U.S. TREASURY NOTES AND BONDS -- 0.1%
700,000 6.25%, 8/15/23 782,362
297,500 7.875%, 8/15/01 320,741
------------
Total U.S. Treasury Notes and Bonds
(cost -- $878,024) 1,103,103
------------
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS -- 81.6%
AEROSPACE/DEFENSE -- 3.3%
88,700 AlliedSignal, Inc. 3,930,519
672,400 Boeing Co. 21,937,050
------------
25,867,569
------------
</TABLE>
* Non-income producing security
A-3
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
BANKING -- 13.9%
477,000 BankBoston Corp. $ 18,573,187
759,500 Citigroup, Inc. 37,595,250
32,000 M & T Bank Corp. 16,606,000
885,000 Wells Fargo & Co. 35,344,688
------------
108,119,125
------------
CHEMICALS -- 7.6%
130,000 Dow Chemical Co. 11,821,875
532,000 du Pont (E.I.) de Nemours & Co. 28,229,250
119,200 Hercules, Inc. 3,263,100
240,000 Monsanto Co. 11,400,000
200,000 Solutia, Inc. 4,475,000
------------
59,189,225
------------
CONGLOMERATES -- 4.4%
270,000 Minnesota Mining &
Manufacturing Co. 19,203,750
167,600 Tenneco, Inc. 5,708,875
125,000 Textron, Inc. 9,492,187
------------
34,404,812
------------
CONSUMER PRODUCTS -- 1.4%
474,500 Mattel, Inc. 10,824,531
------------
DRUGS & MEDICAL PRODUCTS -- 0.7%
120,000 Becton, Dickinson & Co. 5,122,500
------------
ENERGY -- 1.1%
300,000 Unocal Corp. 8,756,250
------------
FOOD SERVICES -- 9.1%
617,000 Diageo plc ADR 28,536,250
547,200 McDonald's Corp. 41,929,200
------------
70,465,450
------------
INSURANCE -- 5.8%
434,100 ACE Ltd. 14,949,319
396,600 EXEL Ltd. 29,745,000
------------
44,694,319
------------
MACHINERY/ENGINEERING -- 1.9%
329,500 Caterpillar, Inc. 15,157,000
------------
MANUFACTURING -- 2.8%
550,000 ITT Industries, Inc. 21,862,500
------------
MEDIA/BROADCASTING -- 7.8%
630,000 News Corp. Ltd. ADR + 15,553,125
730,000 Time Warner, Inc. 45,305,625
------------
60,858,750
------------
MISCELLANEOUS FINANCIAL SERVICES -- 6.5%
780,000 Federal Home Loan Mortgage Corp. 50,261,250
------------
PAPER PRODUCTS -- 1.8%
351,000 Champion International Corp. 14,215,500
------------
PRINTING/PUBLISHING -- 2.1%
350,000 Donnelley (R.R.) & Sons Co. 15,334,375
20,000 Reed International plc ADR 630,000
------------
15,964,375
------------
REAL ESTATE -- 0.1%
1,399 Security Capital Group Inc., (Class A) * 923,065
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
TECHNOLOGY -- 1.3%
240,000 Computer Associates International, Inc. $ 10,230,000
------------
TELECOMMUNICATIONS -- 4.9%
250,200 Sprint Corp. (FON Group) 21,048,075
257,800 US West, Inc. 16,660,325
------------
37,708,400
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 3.3%
475,000 Philip Morris Cos., Inc. 25,412,500
------------
TRANSPORTATION -- 1.8%
240,000 UAL Corp.* 14,325,000
------------
Total Common Stocks
(cost -- $562,602,211) 634,362,121
------------
Total Investments
(cost -- $702,880,428) 99.7% $774,865,417
Other Assets in Excess of Liabilities 0.3 2,221,706
----- ------------
Total Net Assets 100.0% $777,087,123
===== ============
U.S. GOVERNMENT INCOME PORTFOLIO
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY NOTES AND BONDS -- 50.1%
475,000 5.625%, 10/31/99 478,563
375,000 5.875%, 11/30/01 387,656
95,000 6.25%, 4/30/01 98,340
1,450,000 6.50%, 5/31/02 1,530,881
885,000 6.50%, 10/15/06 981,660
1,450,000 7.25%, 8/15/22 1,804,800
------------
Total U.S. Treasury Notes and Bonds
(cost -- $5,152,219) 5,281,900
------------
U.S. GOVERNMENT AGENCY NOTES -- 33.5%
75,000 Federal Farm Credit Bank,
8.65%, 10/1/99 77,004
Federal Home Loan Bank,
345,000 6.90%, 2/7/07 378,800
100,000 8.09%, 12/28/04 114,250
155,000 8.60%, 8/25/99 158,463
Federal Home Loan Mortgage Corp.,
65,000 4.85%, 2/2/99 64,720
175,000 6.22%, 3/24/03 182,082
300,000 7.71%, 6/21/04 303,561
125,000 7.75%, 11/7/01 133,848
150,000 8.115%, 1/31/05 171,843
Federal National Mortgage Assoc.,
95,000 5.16%, 1/15/99 94,809
550,000 6.00%, 5/15/08 580,591
150,000 9.20%, 9/11/00 160,101
100,000 Student Loan Marketing Assoc., 7.20%, 11/9/00 103,812
1,000,000 Tennessee Valley Authority, 5.375%, 11/13/08 1,002,660
------------
Total U.S. Government Agency Notes
(cost -- $3,457,686) 3,526,544
------------
</TABLE>
* Non-income producing security
+ Preferred stock
A-4
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
MORTGAGE-RELATED SECURITIES -- 13.2%
Federal National Mortgage Assoc.,
$ 147,301 6.00%, 3/1/13 $ 147,669
147,370 6.50%, 5/1/26 148,382
191,623 6.50%, 1/1/28 192,880
318,520 6.50%, 2/1/28 320,610
2,975 9.00%, 8/1/02 3,034
8,866 9.50%, 12/1/06 9,144
21,359 9.50%, 3/1/19 22,934
43,455 9.50%, 12/1/19 46,496
Government National Mortgage Assoc.,
328,734 7.00%, 3/15/28 336,334
162,744 7.00%, 4/15/28 166,507
------------
Total Mortgage-Related Securities
(cost -- $1,368,586) 1,393,990
------------
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
CORPORATE NOTES -- 2.2%
CONGLOMERATES -- 1.0%
$ 100,000 General Electric Capital Corp., 8.375%, 3/1/01 $ 106,627
------------
MISCELLANEOUS FINANCIAL SERVICES -- 1.2%
125,000 International Lease Finance Corp., 6.125%,
11/1/99 125,646
------------
Total Corporate Notes
(cost -- $226,678) 232,273
------------
Total Investments
(cost -- $10,205,169) 99.0% $ 10,434,707
Other Assets in Excess of Liabilities 1.0 107,255
----- ------------
Total Net Assets 100.0% $ 10,541,962
===== ============
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value
(cost -- $41,093,552,
$159,194,386, $702,880,428,
and $10,205,169,
respectively)............... $50,289,043 $155,317,874 $774,865,417 $ 10,434,707
Cash.......................... 7,456 2,392 7,521 996
Receivable from investments
sold........................ 260,030 443,020 1,708,517 --
Receivable from fund shares
sold........................ 197,790 142,176 267,323 --
Dividends receivable.......... 35,153 61,146 528,204 --
Interest receivable........... -- -- 25,374 122,339
Receivable from investment
adviser..................... -- -- -- 1,478
Other assets.................. 504 1,262 5,598 203
----------- ------------ ------------ ------------
Total Assets...... 50,789,976 155,967,870 777,407,954 10,559,723
----------- ------------ ------------ ------------
LIABILITIES
Payable for investments
purchased................... 2,062,276 347,492 -- --
Payable for fund shares
redeemed.................... -- 79,717 194,272 6,025
Investment advisory fee
payable..................... 2,106 6,646 32,903 --
Other payables and accrued
expenses.................... 14,883 28,081 93,656 11,736
----------- ------------ ------------ ------------
Total
Liabilities.... 2,079,265 461,936 320,831 17,761
----------- ------------ ------------ ------------
Total Net
Assets......... $48,710,711 $155,505,934 $777,087,123 $ 10,541,962
=========== ============ ============ ============
COMPOSITION OF NET ASSETS
Par value ($.01 per share).... $ 12,588 $ 67,314 $ 177,669 $ 9,893
Paid-in-capital in excess of
par......................... 36,745,860 159,773,829 670,274,758 10,303,113
Accumulated undistributed net
investment income........ 496,362 978,615 11,467,176 --
Accumulated net realized gain
(loss)
on investments........... 2,260,410 (1,437,312) 23,182,531 (582)
Net unrealized appreciation
(depreciation)
on investments........... 9,195,491 (3,876,512) 71,984,989 229,538
----------- ------------ ------------ ------------
Total Net
Assets......... $48,710,711 $155,505,934 $777,087,123 $ 10,541,962
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Fund shares outstanding....... 1,258,763 6,731,406 17,766,949 989,297
----------- ------------ ------------ ------------
Net asset value per share..... $ 38.70 $ 23.10 $ 43.74 $ 10.66
=========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
A-6
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign
withholding taxes of
$5,901, $0, $13,926, and
$0, respectively)........ $ 471,848 $ 985,845 $ 9,559,315 $ --
Interest.................... 367,387 1,183,857 7,298,976 494,514
---------- ------------ ----------- ---------
Total investment
income................. 839,235 2,169,702 16,858,291 494,514
---------- ------------ ----------- ---------
OPERATING EXPENSES
Investment advisory fees.... 291,218 1,089,755 5,140,492 49,774
Custodian fees.............. 18,905 37,359 78,062 19,574
Trustees' fees and
expenses................. 12,509 26,040 38,124 11,825
Audit fees.................. 8,786 10,506 24,053 8,173
Transfer and dividend
disbursing agent fees.... 8,207 11,076 28,080 7,286
Reports and notices to
shareholders............. 2,298 12,665 69,154 742
Legal fees.................. 716 2,550 12,763 165
Miscellaneous............... 1,062 2,101 2,870 1,711
---------- ------------ ----------- ---------
Total operating
expenses............... 343,701 1,192,052 5,393,598 99,250
Less: Investment advisory
fees waived............ -- -- -- (16,027)
Less: Expenses offset.... (828) (969) (2,491) (265)
---------- ------------ ----------- ---------
Net operating
expenses............ 342,873 1,191,083 5,391,107 82,958
---------- ------------ ----------- ---------
Net investment
income.............. 496,362 978,619 11,467,184 411,556
---------- ------------ ----------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS)
ON INVESTMENTS -- NET
Net realized gain (loss) on
investments.............. 2,269,575 (1,428,318) 23,587,489 151,330
Net change in unrealized
appreciation
(depreciation) on
investments.............. 1,277,757 (13,507,408) (185,933) 89,811
---------- ------------ ----------- ---------
Net realized gain
(loss) and change in
unrealized
appreciation
(depreciation) on
investments......... 3,547,332 (14,935,726) 23,401,556 241,141
---------- ------------ ----------- ---------
Net increase (decrease) in net
assets resulting from
operations.................. $4,043,694 ($13,957,107) $34,868,740 $ 652,697
========== ============ =========== =========
</TABLE>
See accompanying notes to financial statements.
A-7
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 496,362 $ 311,417
Net realized gain (loss) on investments....................... 2,269,575 1,335,830
Net change in unrealized appreciation (depreciation) on
investments................................................. 1,277,757 4,175,591
----------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ 4,043,694 5,822,838
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (311,417) (188,895)
Net realized gains............................................ (1,344,997) (672,432)
----------- -----------
Total dividends and distributions to shareholders........... (1,656,414) (861,327)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 25,006,798 10,880,025
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- --
Reinvestment of dividends and distributions................... 1,656,414 861,327
Cost of shares redeemed....................................... (9,159,759) (7,725,883)
----------- -----------
Net increase in net assets from fund share transactions..... 17,503,453 4,015,469
----------- -----------
Total increase in net assets............................ 19,890,733 8,976,980
NET ASSETS
Beginning of year............................................. 28,819,978 19,842,998
----------- -----------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $48,710,711 $28,819,978
=========== ===========
SHARES ISSUED AND REDEEMED
Issued........................................................ 673,182 328,269
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- --
Issued in reinvestment of dividends and distributions......... 44,976 28,807
Redeemed...................................................... (248,628) (227,653)
----------- -----------
Net increase................................................ 469,530 129,423
=========== ===========
<CAPTION>
SMALL CAP PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 978,619 $ 397,656
Net realized gain (loss) on investments....................... (1,428,318) 4,341,925
Net change in unrealized appreciation (depreciation) on
investments................................................. (13,507,408) 6,375,677
------------- -------------
Net increase (decrease) in net assets resulting from
operations................................................ (13,957,107) 11,115,258
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (397,659) (226,926)
Net realized gains............................................ (4,342,119) (1,600,321)
------------- -------------
Total dividends and distributions to shareholders........... (4,739,778) (1,827,247)
------------- -------------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 75,017,090 70,252,565
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- --
Reinvestment of dividends and distributions................... 4,739,778 1,827,247
Cost of shares redeemed....................................... (16,118,555) (5,059,988)
------------- -------------
Net increase in net assets from fund share transactions..... 63,638,313 67,019,824
------------- -------------
Total increase in net assets............................ 44,941,428 76,307,835
NET ASSETS
Beginning of year............................................. 110,564,506 34,256,671
------------- -------------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $ 155,505,934 $ 110,564,506
============= =============
SHARES ISSUED AND REDEEMED
Issued........................................................ 3,039,039 2,800,876
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- --
Issued in reinvestment of dividends and distributions......... 177,254 83,857
Redeemed...................................................... (677,160) (207,710)
------------- -------------
Net increase................................................ 2,539,133 2,677,023
============= =============
<CAPTION>
MANAGED PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 11,467,184 $ 4,115,641
Net realized gain (loss) on investments....................... 23,587,489 16,103,603
Net change in unrealized appreciation (depreciation) on
investments................................................. (185,933) 32,559,342
------------- -------------
Net increase (decrease) in net assets resulting from
operations................................................ 34,868,740 52,778,586
------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (4,115,649) (2,161,818)
Net realized gains............................................ (16,508,556) (6,639,642)
------------- -------------
Total dividends and distributions to shareholders........... (20,624,205) (8,801,460)
------------- -------------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 339,789,141 260,261,576
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- --
Reinvestment of dividends and distributions................... 20,624,205 8,801,460
Cost of shares redeemed....................................... (64,361,982) (26,977,032)
------------- -------------
Net increase in net assets from fund share transactions..... 296,051,364 242,086,004
------------- -------------
Total increase in net assets............................ 310,295,899 286,063,130
NET ASSETS
Beginning of year............................................. 466,791,224 180,728,094
------------- -------------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $ 777,087,123 $ 466,791,224
============= =============
SHARES ISSUED AND REDEEMED
Issued........................................................ 7,796,148 6,451,958
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- --
Issued in reinvestment of dividends and distributions......... 476,642 243,943
Redeemed...................................................... (1,520,543) (672,569)
------------- -------------
Net increase................................................ 6,752,247 6,023,332
============= =============
<CAPTION>
U.S. GOVERNMENT
INCOME PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
OPERATIONS
Net investment income......................................... $ 411,556 $ 328,172
Net realized gain (loss) on investments....................... 151,330 13,044
Net change in unrealized appreciation (depreciation) on
investments................................................. 89,811 124,161
----------- -----------
Net increase (decrease) in net assets resulting from
operations................................................ 652,697 465,377
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income......................................... (411,556) (328,172)
Net realized gains............................................ (149,402) (7,663)
----------- -----------
Total dividends and distributions to shareholders........... (560,958) (335,835)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales....................................... 5,717,541 2,093,607
Proceeds from shares issued in connection with the
reorganization of the Bond Portfolio........................ -- 2,172,639
Reinvestment of dividends and distributions................... 560,300 335,840
Cost of shares redeemed....................................... (2,810,893) (1,170,351)
----------- -----------
Net increase in net assets from fund share transactions..... 3,466,948 3,431,735
----------- -----------
Total increase in net assets............................ 3,558,687 3,561,277
NET ASSETS
Beginning of year............................................. 6,983,275 3,421,998
----------- -----------
End of year (including undistributed net investment income of
$496,362 and $311,417; $978,615 and $397,655; $11,467,176
and $4,115,641; and $0 and $0; respectively)................ $10,541,962 $ 6,983,275
=========== ===========
SHARES ISSUED AND REDEEMED
Issued........................................................ 535,354 202,361
Shares issued in connection with the reorganization of the
Bond Portfolio.............................................. -- 212,587
Issued in reinvestment of dividends and distributions......... 52,582 32,289
Redeemed...................................................... (263,013) (112,598)
----------- -----------
Net increase................................................ 324,923 334,639
============= =============
</TABLE>
See accompanying notes to financial statements.
A-8
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Equity Portfolio, the Small Cap Portfolio, the Managed Portfolio and the
U.S. Government Income Portfolio (collectively, the "Portfolios") are four of
six portfolios offered in the Trust. OpCap Advisors (the "Adviser"), a
subsidiary of Oppenheimer Capital, serves as the Trust's investment adviser. The
accompanying financial statements and notes thereto are those of the Portfolios.
The Trust is an investment vehicle for variable annuity and variable life
insurance contracts of various life insurance companies, and qualified pension
and retirement plans. Each portfolio is authorized to issue an unlimited number
of shares of beneficial interest at $.01 par value.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
securities exchange or traded in the over-the -counter National Market System
are valued each business day at the last reported sale price; if there are no
such reported sales, the securities are valued at their last quoted bid price.
Other securities traded over-the-counter and not part of the National Market
System are valued at the last quoted bid price. Investment debt securities
(other than short-term obligations) are valued each business day by an
independent pricing service (approved by the Board of Trustees) using methods
which include current market quotations from a major market maker in the
securities and trader-reviewed "matrix" prices. Short-term debt securities
having a remaining maturity of sixty days or less are valued at amortized cost
or amortized value, which approximates market value. Any securities or other
assets for which market quotations are not readily available are valued at their
fair value as determined in good faith by the Board of Trustees. The ability of
issuers of debt instruments to meet their obligations may be affected by
economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Trust's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders; accordingly, no Federal
income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
The Equity, Small Cap and Managed Portfolios: Dividends and distributions
to shareholders from net investment income and net realized capital gains, if
any, are declared and paid at least annually. The U.S. Government Income
Portfolio: Dividends from net investment income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are declared and
paid at least annually.
The Trust's portfolios record dividends and distributions to its
shareholders on the ex-dividend date. The amount of dividends and distributions
is determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. These "book-tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal income tax treatment;
temporary differences do not
A-9
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS ( CONTINUED)
DECEMBER 31, 1998
(D) DIVIDENDS AND DISTRIBUTIONS (CONCLUDED)
require reclassification. To the extent dividends and/or distributions exceed
current and accumulated earnings and profits for Federal income tax purposes,
they are reported as dividends and/or distributions of paid-in-capital or tax
return of capital. At December 31, 1998, the Trust's portfolios did not have any
permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or on another reasonable basis.
(F) USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) EXPENSES OFFSET
The Portfolios benefit from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolios.
(H) TRUSTEES' FEES AND EXPENSES
On October 19, 1998, the Trust adopted a retirement plan that provides for
payments upon retirement to independent trustees based on the average annual
compensation paid to them during their five highest paid years of service. An
independent trustee must serve for a minimum of seven years (or such lessor
period as may be approved by the board) to become eligible to receive benefits.
The effective date of the retirement plan is January 1, 1999, therefore, no
expenses have been accrued for the year ended December 31, 1998.
(2) INVESTMENT ADVISORY FEE
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of each Portfolio's net assets as of
the close of business each day at the following annual rates: .80% for each of
the Equity, Small Cap and Managed Portfolios on the first $400 million, .75% on
the next $400 million and .70% thereafter; and .60% for the U.S. Government
Income Portfolio. The Adviser is contractually obligated to waive that portion
of each advisory fee and to assume any necessary expense to limit total
operating expenses of each Portfolio to 1.00% of average net assets (net of
expenses offset) on an annual basis. For the year ended December 31, 1998, the
Adviser waived $16,027 in investment advisory fees for the U.S. Government
Income Portfolio.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1998, purchases and sales of investment
securities, other than short-term securities, were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME
PORTOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Purchases...................................... $21,196,589 $112,798,438 $469,808,429 $ 9,985,862
Sales.......................................... 8,644,843 59,424,804 192,301,465 6,536,135
</TABLE>
A-10
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS ( CONCLUDED)
DECEMBER 31, 1998
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
At December 31, 1998, the composition of unrealized appreciation
(depreciation) on investment securities and the cost of investments for Federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
APPRECIATION (DEPRECIATION) NET TAX COST
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Equity Portfolio................................. $ 10,338,795 ($ 1,143,304) $ 9,195,491 $ 41,093,552
Small Cap Portfolio.............................. 15,504,699 (19,536,141) (4,031,442) 159,349,316
Managed Portfolio................................ 110,407,000 (39,173,459) 71,233,541 703,631,876
U.S. Government Income Portfolio................. 238,433 (9,477) 228,956 10,205,751
</TABLE>
(5) CAPITAL LOSS CARRYFORWARD
At December 31, 1998, the Small Cap Portfolio's accumulated net realized
capital losses available as a reduction against future net realized capital
gains for Federal income tax purposes were $1,282,383, which will expire in
2006. To the extent that these capital loss carryforwards are used to offset
future net realized gains, the gains offset will not be distributed to
shareholders.
A-11
<PAGE>
OCC ACCUMULATION TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO
Year Ended
December 31, 1998..... $36.52 $0.39 $3.84 $4.23 ($0.39) ($1.66)
December 31, 1997..... 30.07 0.39 7.34 7.73 (0.28) (1.00)
December 31, 1996..... 25.05 0.21 5.52 5.73 (0.24) (0.47)
December 31, 1995..... 18.12 0.31 6.71 7.02 (0.09) --
September 16, 1994 (3)
to December 31,
1994.................. 18.57 0.09 (0.54) (0.45) -- --
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO
Year Ended
December 31, 1998..... ($ 2.05) $38.70 11.9% $48,711 0.94%(2) 1.36%(2) 29%
December 31, 1997..... (1.28) 36.52 26.6% 28,820 0.99% 1.25% 32%
December 31, 1996..... (0.71) 30.07 23.4% 19,843 0.93%(1) 1.29%(1) 36%
December 31, 1995..... (0.09) 25.05 38.9% 9,036 0.72%(1) 1.74%(1) 31%
September 16, 1994 (3)
to December 31,
1994.................. -- 18.12 (2.4%) 4,281 0.72%(1,4) 1.80%(1,4) 6%
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the
year ended December 31, 1996, 1.26% and 1.20%, respectively, for the year
ended December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SMALL CAP PORTFOLIO
Year Ended
December 31, 1998..... $26.37 $0.14 ($2.38) ($2.24) ($0.09) ($0.94)
December 31, 1997..... 22.61 0.08 4.73 4.81 (0.13) (0.92)
December 31, 1996..... 19.91 0.14 3.45 3.59 (0.25) (0.64)
December 31, 1995..... 17.38 0.26 2.37 2.63 (0.05) (0.05)
September 16, 1994 (3)
to December 31,
1994.................. 17.49 0.06 (0.17) (0.11) -- --
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
SMALL CAP PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998..... ($ 1.03) $23.10 (9.0%) $155,506 0.88%(2) 0.72%(2) 51%
December 31, 1997..... (1.05) 26.37 22.2% 110,565 0.97% 0.64% 68%
December 31, 1996..... (0.89) 22.61 18.7% 34,257 0.93%(1) 1.03%(1) 50%
December 31, 1995..... (0.10) 19.91 15.2% 16,004 0.74%(1) 1.75%(1) 69%
September 16, 1994 (3)
to December 31,
1994.................. -- 17.38 (0.6%) 9,210 0.74%(1,4) 1.22%(1,4) 32%
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.01% and 0.92%, respectively, for the
year ended December 31, 1996, 0.99% and 1.50%, respectively, for the year
ended December 31, 1995 and 1.64% and 0.32%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED PORTFOLIO
Year Ended
December 31, 1998..... $42.38 $0.60 $2.40 $3.00 ($0.33) ($1.31)
December 31, 1997..... 36.21 0.34 7.45 7.79 (0.40) (1.22)
December 31, 1996..... 30.14 0.43 6.31 6.74 (0.41) (0.26)
December 31, 1995..... 20.83 0.42 9.02 9.44 (0.13) --
September 16, 1994 (3)
to December 31,
1994.................. 21.80 0.14 (1.11) (0.97) -- --
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
MANAGED PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998..... ($ 1.64) $43.74 7.1% $777,087 0.82%(2) 1.74%(2) 37%
December 31, 1997..... (1.62) 42.38 22.3% 466,791 0.87% 1.42% 32%
December 31, 1996..... (0.67) 36.21 22.8% 180,728 0.84%(1) 1.66%(1) 27%
December 31, 1995..... (0.13) 30.14 45.6% 99,188 0.66%(1) 1.85%(1) 22%
September 16, 1994 (3)
to December 31,
1994.................. -- 20.83 (4.4%) 54,943 0.66%(1,4) 2.34%(1,4) 8%
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees. If
such waivers had not been in effect, the ratios of net operating expenses to
average net assets and the ratios of net investment income to average net
assets would have been 0.85% and 1.65%, respectively, for the year ended
December 31, 1996, 0.74% and 1.77%, respectively, for the year ended
December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31, 1994.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
----------------------------------------- -----------------------------
NET DISTRIBUTIONS
REALIZED TOTAL TO
AND INCOME DIVIDENDS TO SHAREHOLDERS
NET ASSET UNREALIZED (LOSS) SHAREHOLDERS FROM NET
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME PORTFOLIO
Year Ended
December 31, 1998..... $10.51 $0.53 $0.31 $0.84 ($0.53) ($0.16)
December 31, 1997..... 10.38 0.57 0.14 0.71 (0.57) (0.01)
December 31, 1996..... 10.62 0.55 (0.24) 0.31 (0.55) --
January 3, 1995 (3)
to December 31,
1995.................. 10.00 0.60 0.68 1.28 (0.60) (0.06)
<CAPTION>
RATIOS
-----------------------------------
RATIO
OF NET
OPERATING RATIO
TOTAL EXPENSES OF NET
DIVIDENDS NET NET TO INVESTMENT
AND ASSET ASSETS, AVERAGE INCOME
DISTRIBUTIONS VALUE END OF NET TO PORTFOLIO
TO SHARE- END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER
HOLDERS PERIOD RETURN (5) (000'S) (6) NET ASSETS RATE
------------- ------ ---------- -------- --------- ---------- --------
U.S. GOVERNMENT INCOME P
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1998..... ($ 0.69) $10.66 8.1% $10,542 1.00%(1,2) 4.96%(1,2) 80%
December 31, 1997..... (0.58) 10.51 7.0% 6,983 0.93%(1) 5.51%(1) 80%
December 31, 1996..... (0.55) 10.38 3.0% 3,422 0.96%(1) 5.27%(1) 31%
January 3, 1995 (3)
to December 31,
1995.................. (0.66) 10.62 13.1% 1,442 0.75%(1,4) 5.75%(1,4) 65%
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.19% and 4.77%, respectively, for the
year ended December 31, 1998, 1.06% and 5.37%, respectively, for the year
ended December 31, 1997, 2.34% and 3.87%, respectively, for the year ended
December 31, 1996 and 4.73% and 1.77%, annualized, respectively, for the
period January 3, 1995 (commencement of operations) to December 31, 1995.
- ------------------
(2) Average net assets for the year ended December 31, 1998, were $36,402,283,
$136,219,417, $658,732,358, and $8,295,751 for the Equity, Small Cap,
Managed, and U.S. Government Income Portfolios, respectively.
(3) Commencement of operations
(4) Annualized
(5) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(6) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
A-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Equity Portfolio, the Small Cap
Portfolio, the Managed Portfolio and the U.S. Government Portfolio (four of the
six portfolios constituting OCC Accumulation Trust, hereafter referred to as the
"Trust") at December 31, 1998, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 12, 1999
A-13
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- --------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY NOTES -- 6.6%
Federal Home Loan Bank,
$ 1,890,000 4.30%, 1/4/99...................................................................... $1,889,323
410,000 5.12%, 1/5/99...................................................................... 409,767
--------------
Total U.S. Government Agency Notes (cost -- $2,299,090)............................ 2,299,090
--------------
SHARES
- -------------
COMMON STOCKS -- 94.3%
AUSTRALIA -- 0.3%
BANKING -- 0.3%
9,200 Macquarie Bank Ltd................................................................. 90,202
--------------
AUSTRIA -- 0.9%
BANKING -- 0.9%
6,300 Bank Austria AG.................................................................... 320,360
--------------
BERMUDA -- 3.3%
INSURANCE -- 3.3%
33,300 ACE Ltd............................................................................ 1,146,769
--------------
BRAZIL -- 2.0%
AEROSPACE -- 0.6%
16,000,000 Empresa Brasileira de Aeronautica SA +............................................. 198,626
--------------
CHEMICALS -- 0.4%
12,800 Petroleo Brasileiro SA ADR +....................................................... 145,142
--------------
PAPER PRODUCTS -- 0.0%
210,000 Empresa Nacional de Celulosas SA +................................................. 313
--------------
TELECOMMUNICATIONS -- 0.9%
4,000 Embratel Participacoes SA ADR +.................................................... 55,750
3,401 Tele Centro Oeste Celular Participacoes SA ADR +................................... 9,991
800 Tele Centro Sul Participacoes SA ADR +............................................. 33,450
800 Tele Leste Celular Participacoes SA ADR +.......................................... 22,700
5,320 Tele Norte Leste Participacoes SA ADR +............................................ 66,168
800 Tele Sudeste Celular Participacoes SA ADR +........................................ 16,550
1,600 Telesp Celular Participacoes SA ADR +.............................................. 28,000
4,000 Telesp Participacoes SA ADR +...................................................... 88,500
--------------
321,109
--------------
TEXTILES/APPAREL -- 0.1%
250,000 Compahnia de Tecidos Norte de Minas-Coteminas +.................................... 26,897
--------------
Total Brazilian Common Stocks...................................................... 692,087
--------------
CANADA -- 1.1%
ENERGY -- 0.3%
3,621 Suncor Energy, Inc................................................................. 108,974
--------------
ENTERTAINMENT -- 0.5%
5,000 Imax Corp.*........................................................................ 160,288
--------------
A-14
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<CAPTION>
SHARES VALUE
- ------------- --------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SECURITY/INVESTIGATION -- 0.3%
4,300 Unican Security Systems Ltd........................................................ $ 101,276
--------------
Total Canadian Common Stocks....................................................... 370,538
--------------
FINLAND -- 1.9%
PAPER PRODUCTS -- 1.1%
40,500 Stora Enso Oyj..................................................................... 362,189
--------------
TELECOMMUNICATIONS -- 0.8%
2,400 Oy Nokia AB........................................................................ 291,822
--------------
Total Finnish Common Stocks........................................................ 654,011
--------------
FRANCE -- 6.2%
BANKING -- 1.1%
4,800 Banque National de Paris........................................................... 395,092
--------------
ELECTRONICS -- 0.6%
4,300 Le Carbone Lorraine................................................................ 203,810
--------------
ENERGY -- 0.4%
1,300 Total SA........................................................................... 131,604
--------------
INSURANCE -- 1.4%
3,300 AXA................................................................................ 478,090
--------------
MEDIA/BROADCASTING -- 1.0%
1,300 Canal Plus......................................................................... 354,588
--------------
POWER/UTILITIES -- 0.8%
1,149 Vivendi............................................................................ 297,988
--------------
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 0.9%
1,060 Groupe Danone...................................................................... 303,345
--------------
Total French Common Stocks......................................................... 2,164,517
--------------
GERMANY -- 6.2%
BANKING -- 0.7%
3,150 Bayerishe Vereinsbank AG........................................................... 246,655
--------------
BUILDING & CONSTRUCTION -- 0.2%
6,250 Tarkett Sommer AG.................................................................. 76,128
--------------
CHEMICALS -- 1.5%
12,300 Hoechst AG......................................................................... 509,978
--------------
COMPUTER SERVICES -- 0.6%
500 SAP AG............................................................................. 216,009
--------------
DRUGS & MEDICAL PRODUCTS -- 0.5%
2,700 Gehe AG............................................................................ 186,309
--------------
MANUFACTURING -- 1.6%
8,600 Siemens AG......................................................................... 554,722
--------------
A-15
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<CAPTION>
SHARES VALUE
- ------------- --------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL -- 1.1%
4,700 Metro AG........................................................................... $ 375,075
--------------
Total German Common Stocks......................................................... 2,164,876
--------------
HONG KONG -- 0.4%
INDUSTRIAL MATERIALS -- 0.4%
70,000 Yue Yuen Industrial Holdings....................................................... 132,815
--------------
HUNGARY -- 0.2%
DRUGS & MEDICAL PRODUCTS -- 0.2%
2,000 Gedeon Richter Ltd., GDR Reg. S.................................................... 84,600
--------------
INDIA -- 0.5%
BANKING -- 0.5%
21,000 State Bank of India GDR Reg. S..................................................... 172,200
--------------
ISRAEL -- 1.2%
DRUGS & MEDICAL PRODUCTS -- 1.2%
10,600 Teva Pharmaceutical Industries Ltd. ADR............................................ 431,288
--------------
ITALY -- 0.9%
INSURANCE -- 0.8%
105,000 Istituto Nazionale delle Assicurazioni............................................. 277,193
--------------
REAL ESTATE -- 0.1%
35,000 Unione Immobiliare SpA............................................................. 18,247
--------------
Total Italian Common Stocks........................................................ 295,440
--------------
JAPAN -- 6.9%
AUTOMOTIVE -- 0.5%
5,000 Honda Motor Co., Ltd............................................................... 164,087
--------------
CONSUMER PRODUCTS -- 1.4%
6,000 Canon, Inc......................................................................... 128,173
9,000 Kao Corp........................................................................... 203,008
2,300 Sony Corp.......................................................................... 167,439
--------------
498,620
--------------
ELECTRONICS -- 0.9%
3,000 Rohm Co............................................................................ 273,065
16,000 Sodick Co.*........................................................................ 33,967
--------------
307,032
--------------
MISCELLANEOUS FINANCIAL SERVICES -- 2.4%
2,500 Aiful Corp......................................................................... 151,703
800 Shohkoh Fund & Co. Ltd............................................................. 257,585
6,000 Takefuji Corp...................................................................... 437,859
--------------
847,147
--------------
TECHNOLOGY -- 0.5%
2,000 Secom Co........................................................................... 165,591
--------------
A-16
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<CAPTION>
SHARES VALUE
- ------------- --------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 1.2%
19,000 Mikuni Coca-Cola Bottling Co....................................................... $ 405,882
--------------
Total Japanese Common Stocks....................................................... 2,388,359
--------------
NETHERLANDS -- 4.0%
ELECTRONICS -- 1.5%
7,500 Koninkliijke (Royal) Philips Electronics NV........................................ 503,007
--------------
MISCELLANEOUS FINANCIAL SERVICES -- 1.2%
7,000 ING Groep NV....................................................................... 426,625
--------------
PRINTING/PUBLISHING -- 1.3%
7,250 Ver Ned Uitgevers NV............................................................... 273,221
900 Wolters Kluwer NV.................................................................. 192,484
--------------
465,705
--------------
Total Netherlands Common Stocks.................................................... 1,395,337
--------------
SINGAPORE -- 0.0%
PRINTING/PUBLISHING -- 0.0%
1,377 Singapore Press Holdings Ltd....................................................... 15,013
--------------
SPAIN -- 3.1%
BANKING -- 1.5%
20,800 Argentaria SA...................................................................... 537,855
--------------
ELECTRICAL ENGINEERING -- 0.5%
6,500 Endesa SA.......................................................................... 171,968
--------------
ENERGY -- 0.5%
3,300 Repsol SA.......................................................................... 175,774
--------------
RETAIL -- 0.6%
5,000 Aldeasa SA......................................................................... 196,313
--------------
Total Spanish Common Stocks........................................................ 1,081,910
--------------
SWEDEN -- 4.0%
BANKING -- 0.9%
29,000 Skandinaviska Enskilda Banken...................................................... 305,177
--------------
DRUGS & MEDICAL PRODUCTS -- 0.4%
7,500 ASTRA AB........................................................................... 152,773
--------------
ELECTRONICS -- 0.8%
16,000 Electrolux AB...................................................................... 274,715
--------------
HOTELS -- 0.5%
5,000 Scandic Hotels AB.................................................................. 183,389
--------------
PAPER PRODUCTS -- 0.7%
14,700 AssiDoman AB....................................................................... 231,587
--------------
TELECOMMUNICATIONS -- 0.7%
10,300 Telefonaktiebolaget LM Ericsson.................................................... 244,671
--------------
Total Swedish Common Stocks........................................................ 1,392,312
--------------
A-17
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<CAPTION>
SHARES VALUE
- ------------- --------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SWITZERLAND -- 1.4%
BANKING -- 0.6%
210 Gota Bank*......................................................................... $ 190,631
--------------
DRUGS & MEDICAL PRODUCTS -- 0.8%
150 Novartis AG........................................................................ 294,824
--------------
Total Swiss Common Stocks.......................................................... 485,455
--------------
UNITED KINGDOM -- 7.1%
COMPUTER SERVICES -- 0.1%
52,000 Viglen Technology plc.............................................................. 23,326
--------------
CONGLOMERATES -- 1.1%
190,000 BTR plc............................................................................ 389,849
--------------
CONSUMER PRODUCTS -- 1.6%
27,000 Reckitt & Colman plc............................................................... 357,294
18,000 Unilever plc....................................................................... 202,459
--------------
559,753
--------------
DRUGS & MEDICAL PRODUCTS -- 1.0%
109,000 Smith & Nephew plc................................................................. 331,401
112 SmithKline Beecham plc............................................................. 1,552
--------------
332,953
--------------
ENTERTAINMENT -- 1.2%
61,000 EMI Group plc...................................................................... 408,423
--------------
FOOD SERVICES -- 1.1%
34,461 Diageo plc......................................................................... 382,168
--------------
INDUSTRIAL MATERIALS -- 1.0%
98,000 BPB plc............................................................................ 358,199
--------------
Total United Kingdom Common Stocks................................................. 2,454,671
--------------
UNITED STATES -- 42.7%
AEROSPACE/DEFENSE -- 3.6%
38,000 Boeing Co.......................................................................... 1,239,750
--------------
BANKING -- 5.2%
22,000 Citigroup, Inc..................................................................... 1,089,000
18,000 Wells Fargo & Co. ................................................................. 718,875
--------------
1,807,875
--------------
CHEMICALS -- 4.8%
22,800 du Pont (E.I.) de Nemours & Co..................................................... 1,209,825
9,300 Monsanto Co........................................................................ 441,750
1,000 Solutia, Inc....................................................................... 22,375
--------------
1,673,950
--------------
CONGLOMERATES -- 1.1%
5,300 Minnesota Mining & Manufacturing Co................................................ 376,953
--------------
A-18
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONCLUDED)
DECEMBER 31, 1998
<CAPTION>
SHARES VALUE
- ------------- --------------
<S> <C> <C>
COMMON STOCKS (CONCLUDED)
CONSUMER PRODUCTS -- 0.6%
9,000 Mattel, Inc........................................................................ $ 205,313
--------------
DRUGS & MEDICAL PRODUCTS -- 0.9%
7,100 Becton, Dickinson & Co............................................................. 303,081
--------------
FOOD SERVICES -- 4.9%
22,500 McDonald's Corp.................................................................... 1,724,063
--------------
MACHINERY/ENGINEERING -- 1.9%
14,600 Caterpillar, Inc................................................................... 671,600
--------------
MANUFACTURING -- 1.7%
15,000 ITT Industries, Inc................................................................ 596,250
--------------
MEDIA/BROADCASTING -- 5.8%
32,400 Time Warner, Inc................................................................... 2,010,825
--------------
MISCELLANEOUS FINANCIAL SERVICES -- 6.1%
33,000 Federal Home Loan Mortgage Corp.................................................... 2,126,438
--------------
PAPER PRODUCTS -- 0.9%
7,500 Champion International Corp........................................................ 303,750
--------------
TECHNOLOGY -- 1.1%
5,000 Adaptec, Inc.*..................................................................... 87,813
7,000 Computer Associates International, Inc............................................. 298,375
--------------
386,188
--------------
TELECOMMUNICATIONS -- 2.9%
1,300 Loral Space & Communications Ltd.*................................................. 23,156
11,700 Sprint Corp. (FON Group)........................................................... 984,263
--------------
1,007,419
--------------
TRANSPORTATION -- 1.2%
7,000 UAL Corp........................................................................... 417,813
--------------
Total United States Common Stocks............................................ 14,851,268
--------------
Total Common Stocks (cost -- $28,067,447).......................................... 32,784,028
--------------
Total Investments (cost -- $30,366,537).................................. 100.9% $ 35,083,118
Liabilites in Excess of Other Assets..................................... (0.9) (305,926)
----- ------------
Total Net Assets......................................................... 100.0% $ 34,777,192
===== ============
</TABLE>
- ------------------
* Non-income producing security
+ Preferred Stock
See accompanying notes to financial statements.
A-19
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $30,366,537)........................................................ $ 35,083,118
Cash............................................................................................... 5,604
Foreign currencies (cost -- $280).................................................................. 278
Foreign withholding taxes reclaimable.............................................................. 25,717
Receivable from fund shares sold................................................................... 18,098
Dividends receivable............................................................................... 12,964
Receivable from investments sold................................................................... 11,760
Other assets....................................................................................... 478
-------------
Total Assets..................................................................................... 35,158,017
-------------
LIABILITIES
Payable for investments purchased.................................................................. 358,459
Investment advisory fee payable.................................................................... 1,522
Foreign withholding taxes payable.................................................................. 409
Payable for fund shares redeemed................................................................... 247
Net unrealized depreciation on foreign currency contracts.......................................... 223
Other payables and accrued expenses................................................................ 19,965
-------------
Total Liabilities................................................................................ 380,825
-------------
Total Net Assets................................................................................. $ 34,777,192
-------------
-------------
COMPOSITION OF NET ASSETS
Par value ($.01 per share)......................................................................... $ 22,544
Paid-in-capital in excess of par................................................................... 30,240,626
Distribution in excess of net investment income.................................................... (121,949)
Distribution in excess of net realized capital gains............................................... (86,246)
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies.................................................... 4,722,217
-------------
Total Net Assets................................................................................. $ 34,777,192
-------------
-------------
Fund shares outstanding............................................................................ 2,254,352
-------------
Net asset value per share.......................................................................... $ 15.43
=============
</TABLE>
See accompanying notes to financial statements.
A-20
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $32,910)........................................... $ 457,874
Interest.......................................................................................... 134,072
------------
Total investment income........................................................................ 591,946
------------
OPERATING EXPENSES
Investment advisory fees.......................................................................... 247,144
Custodian fees.................................................................................... 68,593
Trustees' fees and expenses....................................................................... 12,274
Audit fees........................................................................................ 10,767
Transfer and dividend disbursing agent fees....................................................... 7,761
Reports and notices to shareholders............................................................... 1,686
Legal fees........................................................................................ 1,398
Miscellaneous..................................................................................... 634
------------
Total operating expenses....................................................................... 350,257
Less: Expenses offset.......................................................................... (843)
------------
Net operating expenses....................................................................... 349,414
------------
Net investment income........................................................................ 242,532
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS -- NET
Net realized gain on investments.................................................................. 1,274,387
Net realized gain on foreign currency transactions................................................ 23,150
Net change in unrealized appreciation (depreciation) on investments and translation of other
assets and liabilities denominated in foreign currencies....................................... 1,899,363
------------
Net realized gain and change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign currencies............... 3,196,900
------------
Net increase in net assets resulting from operations................................................ $ 3,439,432
============
</TABLE>
See accompanying notes to financial statements.
A-21
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income........................................................... $ 242,532 $ 104,882
Net realized gain on investments................................................ 1,274,387 1,180,309
Net realized gain (loss) on foreign currency transactions....................... 23,150 (31,367)
Net change in unrealized appreciation (depreciation) on investments
and translation of other assets and liabilities denominated in
foreign currencies............................................................ 1,899,363 1,432,604
----------- -----------
Net increase in net assets resulting from operations.......................... 3,439,432 2,686,428
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................................................... (375,199) (124,084)
Net realized gains.............................................................. (1,323,870) (1,184,153)
----------- -----------
Total dividends and distributions to shareholders............................. (1,699,069) (1,308,237)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales......................................................... 11,034,344 10,888,674
Reinvestment of dividends and distributions..................................... 1,699,069 1,308,238
Cost of shares redeemed......................................................... (5,570,212) (4,673,963)
----------- -----------
Net increase in net assets from fund share transactions....................... 7,163,201 7,522,949
----------- -----------
Total increase in net assets............................................... 8,903,564 8,901,140
NET ASSETS
Beginning of year............................................................... 25,873,628 16,972,488
----------- -----------
End of year (including distribution in excess of net investment
income of ($121,949) and ($49,195), respectively)............................. $34,777,192 $25,873,628
=========== ===========
SHARES ISSUED AND REDEEMED
Issued.......................................................................... 692,242 741,096
Issued in reinvestment of dividends and distributions........................... 110,115 91,400
Redeemed........................................................................ (354,531) (308,572)
----------- -----------
Net increase.................................................................. 447,826 523,924
=========== ===========
</TABLE>
See accompanying notes to financial statements.
A-22
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio (the
"Portfolio"), the Managed Portfolio, the U.S. Government Income Portfolio and
the Mid Cap Portfolio. OpCap Advisors (the "Adviser"), a subsidiary of
Oppenheimer Capital, serves as the Trust's investment adviser. The accompanying
financial statements and notes thereto are those of the Portfolio. The Trust is
an investment vehicle for variable annuity and variable life insurance contracts
of various life insurance companies, and qualified pension and retirement plans.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a U.S. or
foreign securities exchange or traded in the over-the-counter National Market
System are valued each business day at the last reported sale price; if there
are no such reported sales, the securities are valued at their last quoted bid
price. Other securities traded over-the-counter and not part of the National
Market System are valued at the last quoted bid price. Investment debt
securities (other than short-term obligations) are valued each business day by
an independent pricing service (approved by the Board of Trustees) using methods
which include current market quotations from a major market maker in the
securities and trader-reviewed "matrix" prices. Short-term debt securities
having a remaining maturity of sixty days or less are valued at amortized cost
or amortized value, which approximates market value. Any securities or other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Board of Trustees. The ability of
issuers of debt instruments to meet their obligations may be affected by
economic developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the Portfolio is
informed of the ex-dividend date and interest income is accrued as earned.
Discounts or premiums on debt securities purchased are accreted or amortized to
interest income over the lives of the respective securities.
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are included
in the portfolio's Statement of Operations. Since the net assets of the
Portfolio are presented at the foreign exchange rates and market prices at the
close of the period, the Portfolio does not isolate the portion of
A-23
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(D) FOREIGN CURRENCY TRANSLATION (CONCLUDED)
the results of operations arising as a result of changes in the exchange rates
from fluctuations arising from changes in the market price of securities.
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions are determined
in accordance with Federal income tax regulations, which may differ from
generally accepted accounting principles. These "book-tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal income tax treatment; temporary
differences do not require reclassification. To the extent dividends and/or
distributions exceed current and accumulated earnings and profits for Federal
income tax purposes, they are reported as dividends and/or distributions of
paid-in-capital or tax return of capital.
The following table discloses the cumulative effect between the respective
capital accounts:
<TABLE>
<CAPTION>
DISTRIBUTION IN DISTRIBUTION IN
EXCESS OF NET EXCESS OF NET
REALIZED INVESTMENT
CAPITAL GAINS INCOME
---------------- ---------------
<S> <C>
($59,913) $ 59,913
</TABLE>
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio of the Trust
based on its net assets in relation to the total net assets of all applicable
portfolios of the Trust or another reasonable basis.
(G) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(H) EXPENSES OFFSET
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(I) TRUSTEES' FEES AND EXPENSES
On October 19, 1998, the Trust adopted a retirement plan that provides for
payments upon retirement to independent trustees based on the average annual
compensation paid to them during their five highest paid years of service. An
independent trustee must serve for a minimum of seven years (or such lessor
period as may be approved by the board) to become eligible to receive benefits.
The effective date of the retirement plan is January 1, 1999, therefore, no
expenses have been accrued for the year ended December 31, 1998.
A-24
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
(2) INVESTMENT ADVISORY FEE
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser is contractually
obligated to waive that portion of the advisory fee and to assume any necessary
expense to limit total operating expenses of the Portfolio to 1.25% of average
net assets (net of expenses offset) on an annual basis.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1998, purchases and sales of investment
securities, other than short-term securities, were $21,623,389 and $16,004,889,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $7,036,400, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $2,519,022 and net unrealized appreciation for Federal income tax purposes is
$4,517,378. Federal income tax cost basis of portfolio securities is $30,565,740
at December 31, 1998. Net capital losses of $96,805 which were incurred after
October 31, 1998 are deemed to arise on the first business day of the following
year.
A-25
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- MARCH 1, 1995 (1) TO
1998 1997 1996 DECEMBER 31, 1995
------- ------- ------- --------------------------
<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:
Dividends to shareholders from net investment
income.............................................. (0.18) (0.04) (0.05) (0.03)
Distributions to shareholders in excess of net
investment income................................... -- (0.03) -- --
Distributions to shareholders from net
realized gains...................................... (0.61) (0.69) (0.07) (0.24)
------- ------- ------- ------
Total dividends and distributions to
shareholders...................................... (0.79) (0.76) (0.12) (0.27)
------- ------- ------- ------
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 (5)......................................... 1.13%(4) 1.19%(6) 1.42%(6) 1.25%(3,6)
------- ------- ------- ------
Ratio of net investment income to average
net assets............................................. 0.79%(4) 0.45%(6) 0.81%(6) 1.02%(3,6)
------- ------- ------- ------
Portfolio turnover rate.................................. 55% 53% 40% 67%
------- ------- ------- ------
</TABLE>
- ------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized
(4) Average net assets for the year ended December 31, 1998 were $30,893,014.
(5) The ratios are calculated to include expenses offset by earnings credits
from a custodian bank (See note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.20% and 0.44%, respectively, for the
year ended December 31, 1997, and 1.83% and 0.22%, respectively, for the
year ended December 31, 1996 and 3.94% and (1.67%), annualized,
respectively, for the period March 1, 1995 (commencement of operations) to
December 31, 1995.
A-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Global Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Portfolio (one of
the six portfolios constituting OCC Accumulation Trust, hereafter referred to as
the "Portfolio") at December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and broker, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 12, 1999
A-27
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY NOTES -- 2.4%
$ 45,000 Federal Home Loan Mortgage Corp., 5.08%, 1/8/99
(cost -- $44,955).................................................................... $ 44,955
----------
SHARES
----------
COMMON STOCKS -- 97.3%
ADVERTISING -- 6.2%
300 Omnicom Group........................................................................ 17,400
1,600 WPP Group plc ADR.................................................................... 98,800
----------
116,200
----------
AUTOMOTIVE -- 3.9%
2,200 LucasVarity Corp. plc ADR............................................................ 73,700
----------
BUILDING & CONSTRUCTION -- 4.7%
800 Armstrong World Industries, Inc. .................................................... 48,250
2,600 Oakwood Homes Corp. ................................................................. 39,488
----------
87,738
----------
CHEMICALS -- 1.1%
4,100 Methanex Corp.*...................................................................... 20,756
----------
COMPUTER SERVICES -- 5.3%
2,250 Sabre Group Holdings, Inc.*.......................................................... 100,125
----------
CONSUMER PRODUCTS -- 1.4%
1,400 Polaroid Corp. ...................................................................... 26,162
----------
DRUGS & MEDICAL PRODUCTS -- 2.7%
1,250 Teva Pharmaceutical Industries Ltd. ADR.............................................. 50,859
----------
ELECTRONICS -- 9.3%
2,200 Allegheny Teledyne, Inc. ............................................................ 44,963
1,600 Arrow Electronics, Inc. ............................................................. 42,700
1,100 Avnet, Inc. ......................................................................... 66,550
600 Oak Industries, Inc. ................................................................ 21,000
----------
175,213
----------
ENERGY -- 2.6%
1,600 Anadarko Petroleum Corp. ............................................................ 49,400
----------
HOTELS -- 1.2%
4,800 Homestead Village, Inc.*............................................................. 21,600
----------
INSURANCE -- 23.5%
2,400 ACE Ltd. ............................................................................ 82,650
2,328 Conseco, Inc. ....................................................................... 71,150
668 Delphi Financial Group, Inc. (Class A)............................................... 35,028
1,100 EXEL Ltd. ........................................................................... 82,500
1,950 Everest Reinsurance Holdings, Inc. .................................................. 75,928
400 PartnerRe Ltd. ...................................................................... 18,300
950 Protective Life Corp. ............................................................... 37,822
1,100 RenaissanceRe Holdings Ltd. ......................................................... 40,287
----------
443,665
----------
A-28
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
SCHEDULE OF INVESTMENTS (CONCLUDED)
DECEMBER 31, 1998
<CAPTION>
SHARES VALUE
---------- ----------
COMMON STOCKS (CONCLUDED)
MACHINERY/ENGINEERING -- 3.2%
<S> <C> <C>
1,650 Dover Corp. ......................................................................... $ 60,431
----------
MANUFACTURING -- 3.7%
300 Carlisle Companies, Inc. ............................................................ 15,488
1,825 Crane Co. ........................................................................... 55,092
----------
70,580
----------
MISCELLANEOUS FINANCIAL SERVICES -- 5.1%
1,900 Countrywide Credit Industries, Inc. ................................................. 95,356
----------
PRINTING/PUBLISHING -- 3.5%
4,800 Hollinger International, Inc. ....................................................... 66,900
----------
REAL ESTATE -- 7.2%
3,300 Prologis Trust....................................................................... 68,475
5,000 Security Capital Group, Inc. (Class B)*.............................................. 67,813
----------
136,288
----------
TECHNOLOGY -- 3.3%
2,300 Adaptec, Inc.*....................................................................... 40,394
800 EG&G, Inc. .......................................................................... 22,250
----------
62,644
----------
TEXTILES/APPAREL -- 5.1%
4,000 Shaw Industries, Inc. ............................................................... 97,000
----------
TRANSPORTATION -- 4.3%
2,000 Air Express International Corp. ..................................................... 43,500
1,500 Eagle USA Airfreight, Inc. .......................................................... 36,750
----------
80,250
----------
Total Common Stocks (cost -- $1,824,346)............................................. 1,834,867
----------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments (cost -- $1,869,301)..................................... 99.7% $1,879,822
Other Assets in Excess of Liabilities...................................... 0.3 5,202
--------- ----------
Total Net Assets........................................................... 100.0% $1,885,024
========= ==========
</TABLE>
- ------------------
* Non-income producing security
See accompanying notes to financial statements.
A-29
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $1,869,301).......................................................... $ 1,879,822
Cash................................................................................................ 13,503
Receivable from investment adviser.................................................................. 2,078
Dividends receivable................................................................................ 1,475
Other assets........................................................................................ 93
------------
Total Assets...................................................................................... 1,896,971
------------
LIABILITIES
Payable for fund shares purchased................................................................... 1,247
Other payables and accrued expenses................................................................. 10,700
------------
Total Liabilities................................................................................. 11,947
------------
Total Net Assets.................................................................................. $ 1,885,024
============
COMPOSITION OF NET ASSETS
Par value ($.01 per share).......................................................................... $ 1,925
Paid-in-capital in excess of par.................................................................... 1,880,997
Accumulated net realized loss on investments........................................................ (8,419)
Net unrealized appreciation on investments.......................................................... 10,521
------------
Total Net Assets.................................................................................. $ 1,885,024
============
Fund shares outstanding............................................................................. 192,501
------------
Net asset value per share........................................................................... $ 9.79
============
</TABLE>
See accompanying notes to financial statements.
A-30
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 9, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $274)................................................. $ 13,300
Interest............................................................................................. 7,738
---------
Total investment income........................................................................... 21,038
---------
OPERATING EXPENSES
Custodian fees....................................................................................... 13,332
Reports and notices to shareholders.................................................................. 12,024
Investment advisory fees............................................................................. 9,473
Audit fees........................................................................................... 8,423
Transfer and dividend disbursing agent fees.......................................................... 6,294
Miscellaneous........................................................................................ 1,186
---------
Total operating expenses.......................................................................... 50,732
Less: Investment advisory fees waived and expenses assumed........................................ (38,307)
Less: Expenses offset............................................................................. (583)
---------
Net operating expenses.......................................................................... 11,842
---------
Net investment income........................................................................... 9,196
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
Net realized loss on investments..................................................................... (8,419)
Net unrealized appreciation on investments........................................................... 10,521
---------
Net realized loss and unrealized appreciation on investments.................................... 2,102
---------
Net increase in net assets resulting from operations................................................... $ 11,298
=========
</TABLE>
See accompanying notes to financial statements.
A-31
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 9,
1998 (1)
TO DECEMBER 31, 1998
--------------------
<S> <C>
OPERATIONS
Net investment income........................................................................ $ 9,196
Net realized loss on investments............................................................. (8,419)
Net unrealized appreciation on investments................................................... 10,521
----------
Net increase in net assets resulting from operations....................................... 11,298
----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........................................................................ (9,196)
Net realized gains........................................................................... --
----------
Total dividends and distributions to shareholders.......................................... (9,196)
----------
FUND SHARE TRANSACTIONS
Net proceeds from sales...................................................................... 2,061,371
Reinvestment of dividends and distributions.................................................. 4,411
Cost of shares redeemed...................................................................... (182,860)
----------
Net increase in net assets from fund share transactions.................................... 1,882,922
----------
Total increase in net assets............................................................ 1,885,024
NET ASSETS
Beginning of period.......................................................................... --
----------
End of period (including undistributed net investment income of $0).......................... $1,885,024
==========
SHARES ISSUED AND REDEEMED
Issued....................................................................................... 211,535
Issued in reinvestment of dividends and distributions........................................ 451
Redeemed..................................................................................... (19,485)
----------
Net increase............................................................................... 192,501
==========
</TABLE>
- ------------------
(1) Commencement of operations
See accompanying notes to financial statements.
A-32
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the U.S. Government Income Portfolio and the Mid Cap
Portfolio (the "Portfolio"). OpCap Advisors (the "Adviser"), a subsidiary of
Oppenheimer Capital, serves as the Trust's investment adviser. The accompanying
financial statements and notes thereto are those of the Portfolio. The Trust is
an investment vehicle for variable annuity and variable life insurance contracts
of various life insurance companies, and qualified pension and retirement plans.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
securities exchange or traded in the over-the-counter National Market System are
valued each business day at the last reported sale price; if there are no such
reported sales, the securities are valued at their last quoted bid price. Other
securities traded over-the-counter and not part of the National Market System
are valued at the last quoted bid price. Investment debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and
trader-reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions is determined in
accordance with Federal income tax regulations, which may differ from generally
accepted accounting principles. These "book-tax" differences are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal income tax treatment; temporary differences do not
require reclassification. To the extent dividends and/or distributions exceed
current and accumulated earnings and profits for Federal income tax purposes,
they are reported as dividends and/or distributions of paid-in-capital or tax
return of capital. At December 31, 1998, the Portfolio did not have any
permanent book-tax differences.
A-33
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
DECEMBER 31, 1998
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) EXPENSES OFFSET
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balanaces earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(H) TRUSTEES' FEES AND EXPENSES
On October 19, 1998, the Trust adopted a retirement plan that provides for
payments upon retirement to independent trustees based on the average annual
compensation paid to them during their five highest paid years of service. An
independent trustee must serve for a minimum of seven years (or such lessor
period as may be approved by the board) to become eligible to receive benefits.
The effective date of the retirement plan is January 1, 1999, therefore, no
expenses have been accrued for the year ended December 31, 1998.
(2) INVESTMENT ADVISORY FEE
The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of the
close of business each day at the annual rate of .80% on the first $400 million,
.75% on the next $400 million and .70% thereafter. The Adviser is contractually
obligated to waive that portion of the advisory fee and to assume any necessary
expense to limit total operating expenses of the Portfolio to 1.00% of average
net assets (net of expenses offset) on an annual basis. For the period
February 9, 1998 (commencement of operations) to December 31, 1998, the Adviser
waived $9,473 in investment advisory fees and assumed $28,834 in operating
expenses for the Portfolio.
(3) PURCHASES AND SALES OF SECURITIES
For the period February 9, 1998 (commencement of operations) to December
31, 1998, purchases and sales of investment securities, other than short-term
securities, were $2,297,854 and $465,086, respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $157,038, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $148,379, and net unrealized appreciation for Federal income tax purposes is
$8,659. Federal income tax cost basis of portfolio securities is $1,871,163 at
December 31, 1998.
(5) CAPITAL LOSS CARRYFORWARD
At December 31, 1998, the Mid Cap Portfolio's accumulated net realized
capital losses available as a reduction against future net realized capital
gains for Federal income tax purposes were $737, which will expire in 2006. To
the extent that these capital loss carryforwards are used to offset future net
realized gains, the gains offset will not be distributed to shareholders. Net
capital losses of $5,820 which were incurred after October 31, 1998 are deemed
to arise on the first business day of the following year.
A-34
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FEBRUARY 9, 1998 (1)
TO DECEMBER 31, 1998
-----------------------
<S> <C>
Net asset value, beginning of period........................................................ $ 10.00
-----------
Income 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 and distributions to shareholders:
Dividends to shareholders from net investment income...................................... (0.05)
Distributions to shareholders from net realized gains..................................... --
-----------
Total dividends and distributions to shareholders...................................... (0.05)
-----------
Net asset value, end of period.............................................................. $ 9.79
===========
Total return (2)............................................................................ (1.6%)
===========
Net assets, end of period................................................................... $ 1,885,024
-----------
Ratio of net operating expenses to average net assets (3,4,5,6)............................. 1.05%
-----------
Ratio of net investment income to average net assets (3,4,6)................................ 0.78%
-----------
Portfolio turnover rate..................................................................... 38%
-----------
</TABLE>
- ------------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown.
(3) Annualized
(4) Average net assets for the period February 9, 1998 (commencement of
operations) to December 31, 1998 were $1,325,812.
(5) Ratios are calculated to include expenses offset by earnings credits from a
custodian bank (See note 1G in Notes to Financial Statements).
(6) During the 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.
A-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
OCC Accumulation Trust -- Mid Cap Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Mid Cap Portfolio (one of the
six portfolios constituting OCC Accumulation Trust, hereafter referred to as the
"Portfolio") at December 31, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the period February 9, 1998
(commencement of operations) through December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 12, 1999
A-36
