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As filed with the Securities and Exchange Commission on February 1, 2000
Registration No. 33-78944
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 12 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 14
OCC ACCUMULATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE WORLD FINANCIAL CENTER, NEW YORK, NY 10281
(Address of Principal Executive Offices)
(212) 739-3191
(Registrant's Telephone Number)
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<S> <C>
Copy to:
Frank Poli, Esq. Ronald M. Feiman, Esq.
Oppenheimer Capital Mayer, Brown & Platt
1345 Avenue of the Americas 1675 Broadway
New York, NY 10105-4800 New York, NY 10019-5820
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to [ ] on May 1, 1999 pursuant to
paragraph (b) paragraph (b)
[ ] On October 15, 1997 pursuant to [ ] 60 days after filing pursuant to paragraph (a)(1)
paragraph (a)(1)
[ ] 75 days after filing pursuant to [ ] on May 1, 1999 pursuant to
paragraph (a)(2) paragraph (a)(2) of Rule 485
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<CAPTION>
CROSS REFERENCE SHEET
Form N-1A
Item
Part A Caption Prospectus
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1. (a) Front Cover Page Front Cover Page
(b) Back Cover Page Back Cover Page
2. Risk/Return Summary: Risk/Return Summary
Investments, Risks and Principal Investment
Performance Strategies and Related Risks
3. Risk/Return Summary: Fee Risk/Return Summary
Table
4. Investment Objectives, Principal Investment Strategies and Related
Principal Investment Risks
Strategies, and Related Risks
5. Management's Discussion of N/A
Fund Performance
6. Management, Organization, Fund Management; Distributions and Taxes
and Capital Structure
7. Shareholder Information Shareholder Information
8. Distribution Arrangements N/A
9. Financial Highlights Financial Highlights
Information
Part B Caption Statement of Additional Information
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10. Cover Page and Table of Cover Page; Table of Contents
Contents
11. Fund History Additional Information-Description of the
Fund
12. Description of the Fund and Investment of the Fund's Assets; Investment
Its Investments and Risks Restrictions
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13. Management of the Fund Investment Management and Other Services
14. Control Persons and Principal Trustees and Officers; Control Persons
Holders of Securities
15. Investment Advisory and Investment Management and Other Services
Other Services
16. Brokerage Allocation and Investment Management and Other Services--
Other Purchases Portfolio Transactions
17. Capital Stock and Other Determination of Net Asset Value; Capital
Securities Stock; Additional Information-Possible
Additional Series
18. Purchase, Redemption and Determination of Net Asset Value
Pricing of Securities
19. Taxation of the Fund Dividends, Distributions and Taxes
20. Underwriters Investment Management and Other Services
21. Calculations of Performance Performance Data
Data
22. Financial Statements Financial Statements
</TABLE>
<PAGE>
OCC ACCUMULATION TRUST
Prospectus _____________, 2000
OCC ACCUMULATION TRUST (the "Fund") is an open-end investment company with the
following investment portfolios (the "Portfolios").
Equity Portfolio
Blended Equity Portfolio
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Target Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Innovation Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
Shares of the Portfolios are sold only to variable accounts of certain life
insurance companies as an investment vehicle for their variable annuity and
variable life insurance contracts and to qualified pension and retirement plans.
The Securities and Exchange Commission has not approved any Portfolio's
shares as an investment or determined whether this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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Page
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RISK/RETURN SUMMARY...............................................
PRINCIPAL INVESTMENT STRATEGIES...................................
RISKS.............................................................
INVESTMENT POLICIES...............................................
FUND MANAGEMENT...................................................
SHARE PRICE.......................................................
DISTRIBUTIONS AND TAXES...........................................
YEAR 2000 ISSUES..................................................
FINANCIAL HIGHLIGHTS..............................................
SMALL CAP PORTFOLIO...............................................
</TABLE>
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RISK/RETURN SUMMARY
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<S> <C> <C>
Investment Goals.... Equity Portfolio................ Long term capital appreciation
Blended Equity Portfolio........ Long term capital appreciation
Large Cap Growth Portfolio...... Long term capital appreciation
Small Cap Growth Portfolio...... Capital appreciation
Target Portfolio................ Capital appreciation
Mid Cap Portfolio............... Long term capital appreciation
Small Cap Portfolio............. Capital appreciation
Innovation Portfolio............ Capital appreciation
Global Equity Portfolio......... Long term capital appreciation
Managed Portfolio............... Growth of capital over time
Balanced Portfolio.............. Growth of capital and investment income
U.S. Gov't Income Portfolio..... High current income and protection
of capital
</TABLE>
Principal Investment
Strategies . The Equity Portfolio invests primarily in equity
securities listed on the New York Stock Exchange.
. The Blended Equity Portfolio invests generally in
equity securities of companies with market
capitalizations of at least $5 billion that the adviser
believes offer growth opportunities and in equity
securities of companies with market capitalizations of
more than $2 billion that the investment adviser
believes are undervalued relative to their industry
group.
. The Large Cap Growth Portfolio invests primarily in
equity securities of companies with market
capitalizations of at least $5 billion.
. The Small Cap Growth Portfolio invests primarily in
equity securities of companies with market
capitalizations under $2 billion.
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. The Target Portfolio invests primarily in equity
securities of companies with market capitalizations
between $1 billion and $10 billion.
. The Mid Cap Portfolio invests primarily in equity
securities of companies with market capitalizations
between $500 million and $5 billion.
. The Small Cap Portfolio invests primarily in equity
securities of companies with market capitalizations
under $1 billion.
. The Innovation Portfolio invests primarily in equity
securities of companies which use innovative
technologies to gain a strategic competitive advantage
in their industry, as well as companies that provide
and service those technologies.
. The Global Equity Portfolio invests primarily in equity
securities on a worldwide basis and may invest in U.S.
or foreign fixed income securities.
. The Managed Portfolio invests in common stocks, bonds
and cash equivalents, allocated based on the investment
adviser's judgment.
. The Balanced Portfolio invests in common stocks,
preferred stocks, securities convertible into common
stock and debt securities.
. The U.S. Government Income Portfolio invests solely in
debt obligations including mortgage-backed securities
issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
As of the date of this Prospectus, shares of the Blended
Equity, Large Cap Growth, Small Cap Growth, Target and
Innovation Portfolios are currently not available to
variable accounts of life insurance companies and to
qualified pension and retirement plans for investment.
Fund management anticipates that those Portfolios will
become available for investment in the near future.
Investment
Philosophy OpCap Advisors is the investment adviser to all of the
Portfolios. OpCap Advisors has retained PIMCO Equity
Advisors, a division of PIMCO Advisors, as sub-adviser to
the Large Cap Growth, Small Cap Growth, Target and
Innovation Portfolios, and for a portion of the assets of
the Blended Equity Portfolio. OpCap Advisors has retained
Pacific Investment Management Company ("PIMCO") as sub-
adviser for a portion of the assets of the Managed
Portfolio.
For the equity investments it manages directly, i.e., the
Equity, Mid Cap, Small Cap, Global Equity and Balanced
Portfolios and the portion of the assets of the Blended
Equity and Managed Portfolios not sub-advised by its other
affiliates, OpCap Advisors applies principles of value
investing, although the individual portfolio managers
implement those principles differently.
When selecting equity securities, OpCap Advisors believes
there are two major components of value.
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. A company's ability to generate earnings that
contribute to shareholder value. OpCap Advisors
considers discretionary cash flow-cash that remains
after a company spends what is needed to sustain its
industrial position-as a primary determinant of a
company's potential to add economic value.
. Price - OpCap Advisors looks for market undervaluation
great enough to offer the potential for upside reward
with what it believes is modest downward risk.
The PIMCO Equity Advisors division of PIMCO Advisors
("PIMCO Equity Advisors") acts as sub-adviser to the Large
Cap Growth, Small Cap Growth, Target and Innovation
Portfolios (the "Growth-Oriented Portfolios") and has been
retained by OpCap Advisors to act as sub-adviser for a
portion of the investments of the Blended Equity
Portfolio.
PIMCO Equity Advisors' investment philosophy focuses on
the wealth-creating characteristics of a growing business.
By combining the characteristics of growth, quality, and
time, its investment process seeks to capture the powerful
compounding effect of a growing enterprise. PIMCO Equity
Advisors seeks to invest in superior companies and then
monitor accounts to ensure that it maintains a portfolio
of the highest-quality companies available. The investment
process includes both quantitative and qualitative screens
at identifying candidate securities.
PIMCO Equity Advisors aims to significantly outperform the
relevant market index over the long term and to control
risk relative to the market. There can be no assurance
that it will achieve these goals.
PIMCO acts as the sub-adviser to the Managed Portfolio. In
selecting securities for the Managed Portfolio, PIMCO
develops an outlook for interest rates, currency exchange
rates and the economy; analyzes credit and call risks, and
uses other security selection techniques. The proportion
of the Portfolio's assets committed to investment in
securities with particular characteristics (such as
quality, section interest rate or maturity) varies based
on PIMCO's outlook for the U.S. economy and the economies
of other countries in the world, the financial markets and
other factors.
PIMCO attempts to identify areas of the bond market that
are undervalued relative to the rest of the market. PIMCO
identifies these areas by grouping bonds into the
following sectors: money markets, governments, corporates,
mortgages, asset-backed and international. Sophisticated
proprietary software then assists in evaluating sectors
and pricing specific securities. Once investment
opportunities are identified, PIMCO will shift assets
among sectors depending upon changes in relative
valuations and credit spreads. There is no guarantee that
PIMCO's security selection techniques will produce the
desired results.
OpCap Advisors uses fundamental company analysis to select
securities. Fundamental company analysis involves
intensive evaluation of historic financial data including:
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. Company financial statements
. Market share analysis
. Unit volume growth
. Barriers to entry
. Pricing policies
. Management record.
OpCap Advisors uses fundamental company analysis to select
companies they believe have one or more of the following
characteristics:
. substantial and growing discretionary cash flow
. strong shareholder value-oriented management
. valuable consumer or commercial franchises
. high returns on capital
. favorable price to intrinsic value relationship.
In selecting debt securities, OpCap Advisors analyzes yield
relationships between different sectors and among securities
along the yield curve. OpCap Advisors seeks to take advantage
of maturities and individual issues that are inexpensive and
have the potential to provide superior returns. In evaluating
high yield debt securities, OpCap Advisors supplements its
traditional credit analysis with an evaluation of an issuer's
asset values.
Principal Risks If you invest in the Portfolios that invest in equity
securities, you could lose money or those Portfolios could
underperform other investments if any of the following happens:
. The stock market goes down
. The Portfolio's investment style (i.e., value or growth)
falls out of favor with the stock market
. The Portfolio's investment sector (e.g., small cap, mid cap
or foreign securities, which generally are more volatile
than U.S. large cap securities) declines or becomes less
liquid
. For the Equity, Mid Cap, Small Cap, Global Equity, Managed
and Balanced Portfolios, the market undervalues the stocks
held for longer than expected, or the stocks purchased turn
out not to be undervalued
. For the Innovation Portfolio, the market overvalues proposed
technological innovations, or such innovations fail to
develop
. The stocks selected for growth potential do not achieve such
growth.
If you invest in the Portfolios that invest in debt securities,
you could lose money or your investment may underperform other
investments if any of the following happens:
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. Interest rates rise and the bond market goes down.
. Issuers of debt instruments cannot meet their obligations.
. Bond issuers' call bonds selling at a premium to their call
price before the maturity date.
. Loans securing mortgage-backed obligations prepay principal
more rapidly than expected. The Portfolios may have to
reinvest these prepayments at lower rates.
The U.S. Government Income Portfolio principally buys fixed
income securities that are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, so credit risk
should be low.
Bar Chart and
Performance
Table
The bar charts provide some indication of the risks of
investing in the Portfolios by showing changes in the
performance of each Portfolio's shares from year to year for
the life of each Portfolio and the highest and lowest quarterly
return during the life of each Portfolio. Performance is not
shown on a bar chart for the Blended Equity, Balanced, Large
Cap Growth, Small Cap Growth, Target and Innovation Portfolios
because they have not commenced operations or do not have a
full calendar year of performance.
The Portfolios' past performance does not necessarily indicate
how each Portfolio will perform in the future. The Portfolios'
performance does not reflect charges and deductions which are
imposed under the variable contracts.
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Equity Portfolio
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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%
1999 2.54%
</TABLE>
During the period from the inception of the Equity Portfolio through December
31, 1999, 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).
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Mid Cap Portfolio
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1998 (1.6)%
1999 21.63%
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During the period from the inception of the Mid Cap Portfolio through December
31, 1999, the highest quarterly return was 23.78% (for the quarter ended
December 31, 1999) and the lowest quarterly return was (17.87)% (for the quarter
ended September 30, 1998).
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Small Cap Portfolio
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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)%
1999 (1.83)%
</TABLE>
During the period from the inception of the Small Cap Portfolio through December
31, 1999, 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
<S> <C>
1996 15.02%
1997 14.02%
1998 13.29%
1999 26.53%
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During the period from the inception of the Global Equity Portfolio through
December 31, 1999, 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).
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Managed Portfolio
<S> <C>
1989 32.55%
1990 (3.63)%
1991 45.98%
1992 18.45%
1993 10.39%
1994 2.61%
1995 45.55%
1996 22.77%
1997 22.29%
1998 7.12%
1999 5.00%
</TABLE>
During the period from the inception of the Managed Portfolio through December
31, 1999, 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
<S> <C>
1996 3.02%
1997 7.04%
1998 8.15%
1999 (1.88)%
</TABLE>
During the period from the inception of the U.S. Government Income Portfolio
through December 31, 1999, the highest quarterly return was 4.68% (for the
quarter ended September 30, 1998) and the lowest quarterly return was (1.05)%
(for the quarter ended June 30, 1999).
*On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund commenced
operations. The total net assets for each of the Equity, Small Cap and Managed
Portfolios immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274 and
$51,345,102, respectively, with respect to the Fund. For the period prior to
September 16, 1994, the performance figures above for each of the Equity, Small
Cap and Managed Portfolios reflect the performance of the corresponding
Portfolios of the Old Trust. The Old Trust commenced operations on August 1,
1988.
The table shows how the average annual returns for one year, five years and for
the life of the Equity and Managed Portfolios compare to that of the Standard &
Poor's Composite Index of 500 Stocks, how the average annual returns for one
year and for the life of the Mid Cap Portfolio compare to those of the Wilshire
750 Mid Cap Index, how the
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average annual returns for the Small Cap Portfolio compare to the Russell 2000,
how the average annual returns for the Global Equity Portfolio compare to the
MSCI World Index, and how the returns for the U.S. Government Income Portfolio
compare to the Lehman Intermediate Government Bond Index. The table gives some
indication of the risks of the Portfolios by comparing the performance of each
Portfolio with a broad measure of market performance. The Blended Equity,
Balanced, Large Cap Growth, Small Cap Growth, Target and Innovation do not have
track records yet.
<TABLE>
<CAPTION>
Average Annual Total Returns for the periods ended December 31, 1999
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Past Year Past 5 Years Since Inception
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<S> <C> <C> <C>
Equity Portfolio 2.54% 19.98% 15.66%
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Managed Portfolio 5.00% 19.69% 17.70%
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S&P 500 Index 21.04% 28.54% 18.98%
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Small Cap Portfolio (1.83)% 8.35% 11.48%
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Russell 2000 21.26% 16.69% 13.06%
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Mid Cap Portfolio 21.63% N/A 9.96%
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Wilshire 750 Mid Cap Index 26.63% N/A 16.29%
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Global Equity Portfolio 26.53% N/A 18.06%
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MSCI World Index 24.93% N/A 20.50%
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U.S. Government Income Portfolio (1.88)% N/A 5.78%
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Lehman Intermediate Government
Bond Index 0.49% N/A 6.93%
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U.S. Government Income Portfolio Yield for the 30-day period ended December 31, 1999
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5.38%
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</TABLE>
For current yield information please call 1-800-700-8528.
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PRINCIPAL INVESTMENT STRATEGIES
Equity Portfolio
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Q What is the Portfolio's investment objective?
A Long term capital appreciation through investment in a diversified portfolio
of equity securities selected on the basis of a value approach to investing.
Q What is the Portfolio's investment program?
A The Equity Portfolio invests primarily in equity securities of companies that
OpCap Advisors believes are undervalued in the marketplace. Under normal
conditions, the Equity Portfolio will invest at least 65% of its total assets
in equity securities listed on the New York Stock Exchange. The Equity
Portfolio also may purchase securities listed on other U.S. or foreign
securities exchanges or traded in the U.S. or foreign over the counter
markets.
The Equity Portfolio is managed to follow a composite portfolio
constructed by a group of senior portfolio managers at OpCap Advisors.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long term
growth of capital. Equity investors should have a long term investment
horizon and should be prepared for the ups and downs of the stock markets.
Blended Equity 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 generally in equity securities of companies with market
capitalization of a least $5 billion at the time of purchase that PIMCO
Equity Advisors believes will experience relatively rapid earnings growth and
in equity securities of companies with market capitalizations of at least $2
billion that OpCap Advisors believes are undervalued relative to their
industry group. The majority of the stocks purchased by the Portfolio will be
listed on a domestic stock exchange or traded in the U.S. over the counter
market. The Portfolio may purchase foreign securities that are listed on a
U.S. or foreign exchange or traded in the U.S. or foreign over the counter
market, purchase and sell foreign currencies and use derivatives for risk
11
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management purposes or as part of its investment strategy. In response to
unfavorable market and other conditions, the Portfolio may invest temporarily
in high-quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long term
growth of capital. Opportunities for long term growth of capital arise from
companies that are undervalued relative to their industry group or show
strong potential for growth or experience better than anticipated earnings
growth.
Large Cap Growth Portfolio
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Q What is the Portfolio's investment objective?
A Long term capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with market
capitalizations of at least $5 billion at the time of purchase which OpCap
Advisors and PIMCO Equity Advisors believes will experience relatively rapid
earnings growth. The majority of the stocks purchased by the Portfolio will
be listed on a domestic stock exchange or traded in the U.S. over the counter
market. The Portfolio may purchase foreign securities that are listed on a
U.S. or foreign exchange or traded in the U.S. or foreign over the counter
market, purchase and sell foreign currencies and use derivatives for risk
management purposes or as part of its investment strategy. In response to
unfavorable market and other conditions, the Portfolio may invest temporarily
in high-quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long term
growth of capital. The prices of securities of large cap companies may be
less volatile than those of less highly-capitalized companies.
Small Cap Growth Portfolio
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Q What is the Portfolio's investment objective?
A Capital appreciation.
Q What is the Portfolio's investment program?
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A The Portfolio invests primarily in equity securities of companies with market
capitalizations of under $2 billion at the time of purchase which PIMCO
Equity Advisors believes will experience relatively rapid earnings growth.
The majority of the stocks purchased by the Portfolio will be listed on a
domestic stock exchange or traded in the U.S. over the counter market. The
Portfolio may purchase foreign securities that are listed on a U.S. or
foreign exchange or traded in the U.S. or foreign over the counter market,
purchase and sell foreign currencies and use derivatives for risk management
purposes or as part of its investment strategy. In response to unfavorable
market and other conditions, the Portfolio may invest temporarily in high-
quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks and other equity securities offer a way to invest for long term
growth of capital. Opportunities for appreciation for small cap companies
could result from product expansion or product improvement, industry
transition, new management or the sale of the company. Small cap companies
are followed by fewer analysts than are large and mid cap companies. So as
additional analysts follow a small cap stock, investor demand for the stock
may increase.
Target Portfolio
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Q What is the Portfolio's investment objective?
A Capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with market
capitalizations between $1 billion and $10 billion at the time of purchase
which PIMCO Equity Advisors believes will experience relatively rapid
earnings growth. The majority of the stocks purchased by the Portfolio will
be listed on a domestic stock exchange or traded in the U.S. over the counter
market. The Portfolio may purchase foreign securities that are listed on a
U.S. or foreign exchange or traded in the U.S. or foreign over the counter
market, purchase and sell foreign currencies and use derivatives for risk
management purposes or as part of its investment strategy. In response to
unfavorable market and other conditions, the Portfolio may invest temporarily
in high-quality fixed income securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital. To the
extent the Portfolio invests in mid cap companies it may take advantage of
opportunities for value creation resulting from regional or product line
expansion or the sale of such companies. Investment in large cap companies
may mitigate the volatility of the Portfolio.
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Mid Cap Portfolio
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Q What is the Portfolio's investment objective?
A Long term capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies with market
capitalizations between $500 million and $5 billion at the time of purchase
which OpCap Advisors believes are undervalued. The majority of the stocks
purchased by the Portfolio will be listed on a domestic stock exchange or
traded in the U.S. over the counter market. The Portfolio may purchase
foreign securities that are listed on a U.S. or foreign exchange or traded in
the U.S. or foreign over the counter markets. The Portfolio also may purchase
securities in initial public offerings or shortly after those offerings have
been completed.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital. Mid cap
companies generally are studied by fewer analysts than are large cap
companies. Institutional investors may not want to hold large positions in
mid cap companies. Opportunities for capital appreciation for mid cap
companies could result from regional or product line expansion or sale of the
company.
Small Cap Portfolio
- -------------------
Q What is the Portfolio's investment objective?
A Capital appreciation through a diversified portfolio consisting primarily of
securities of companies with market capitalizations of under $1 billion at
time of purchase.
Q What is the Portfolio's investment program?
A The Small Cap Portfolio invests primarily in equity securities of companies
with market capitalizations under $1 billion at the time of purchase that
OpCap Advisors believes are undervalued in the marketplace. The Small Cap
Portfolio may purchase securities listed on U.S. or foreign securities
exchanges or traded in the U.S. or foreign over the counter markets. The
Portfolio also may purchase securities in initial public offerings or shortly
after those offerings have been completed.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital.
Opportunities for value creation for small cap companies could result from
product expansion or product improvement, industry transition, new management
or sale of the company. Small cap companies are followed by fewer analysts
than are large and
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mid cap companies. So as additional analysts follow a small cap stock,
investor demand for the stock may increase.
Innovation Portfolio
- --------------------
Q What is the Portfolio's investment objective?
A Capital appreciation.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies which use
innovative technologies to gain a strategic competitive advantage in their
industry, as well as companies that provide and service those technologies.
Although the Portfolio emphasizes technology companies, it is not required to
invest exclusively in companies in a particular business sector. The majority
of the stocks purchased by the Portfolio will be listed on a domestic stock
exchange or traded in the U.S. over the counter market. The Portfolio may
purchase foreign securities that are listed on a U.S. or foreign exchange or
traded in the U.S. or foreign over the counter market, purchase and sell
foreign currencies and use derivatives for risk management purposes or as
part of its investment strategy. In response to unfavorable market and other
conditions, the Portfolio may invest temporarily in high-quality fixed income
securities.
Q What are the potential rewards of investing in the Portfolio?
A Common stocks offer a way to invest for long term growth of capital.
Opportunities for technology companies may result from the competitive
strategic advantages associated with the use and service of innovative
technologies as well as from the successful development and sale of those
technologies.
Global Equity Portfolio
- -----------------------
Q What is the Portfolio's investment objective?
A Long term capital appreciation through pursuit of a global investment
strategy primarily involving equity securities.
Q What is the Portfolio's investment program?
A The Portfolio invests primarily in equity securities of companies located
throughout the world. The Portfolio may invest up to 35% of its total assets
in fixed income securities which may be lower than investment grade.
Q What are the potential rewards of investing in the Portfolio?
15
<PAGE>
A Foreign securities provide additional opportunities and diversification. U.S.
stocks represent less than half of the world's stock market capitalization.
Managed Portfolio
- -----------------
Q What is the Portfolio's investment objective?
A Growth of capital over time through investment in a portfolio consisting of
common stocks, bonds and cash equivalents, the percentages of which will vary
based on OpCap Advisors' and PIMCO's assessments of the relative outlook for
such investments.
Q What is the Portfolio's investment program?
A The Managed Portfolio invests in common stocks, bonds and cash equivalents in
varying percentages based on OpCap Advisors' and PIMCO's view of relative
values. The Managed Portfolio may purchase securities listed on U.S. or
foreign securities exchanges or traded in the U.S. or foreign over the
counter markets. The Portfolio also may purchase investment grade U.S.
government and corporate bonds and high quality money market securities. The
Portfolio can invest up to 100% of its assets in debt securities but will
only do so if equity securities are not an attractive investment.
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio normally invests mainly in equity securities. Common stocks
offer a way to invest for long term growth of capital.
Balanced Portfolio
- ------------------
Q What is the Portfolio's investment objective?
A Growth of capital and investment income.
Q What is the Portfolio's investment program?
A The Balanced Portfolio invests in equity securities (with an emphasis on
dividend-paying stocks) and debt securities that OpCap Advisors believes are
undervalued. Generally, the Portfolio will invest at least 25% of its total
assets in equity securities and at least 25% of its total assets in debt
securities. The Portfolio seeks debt securities that offer investment income
and the potential for capital appreciation if interest rates decline or the
issuer's credit improves. OpCap Advisors seek to find convertible securities
that have the potential for investment income prior to conversion and capital
growth. Convertible debt securities may be classified as equity securities or
as debt securities depending on the value of the conversion feature as
compared to the debt feature. The Balanced Portfolio may purchase securities
listed on U.S. or foreign securities exchanges or
16
<PAGE>
traded in U.S. or foreign over the counter markets. The Portfolio may invest
up to 25% of its total assets in debt securities rated below investment
grade.
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio's mix of equity securities, convertible securities and debt
securities may result in the Portfolio's being less volatile than the market.
U.S. Government Income Portfolio
- --------------------------------
Q What is the Portfolio's investment objective?
A High level of current income together with protection of capital by investing
exclusively in debt obligations, including mortgage-backed securities issued
or guaranteed by the United States government, its agencies or
instrumentalities.
Q What is the Portfolio's investment program?
A The U.S. Government Income Portfolio invests in debt obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities. These securities are referred to as "U.S. Government
Securities." The Portfolio also may purchase mortgage-backed securities to
effectuate this program.
OpCap Advisors observes current and historical yield relationships between
maturities and sectors to seek the best relative values. The Portfolio
generally maintains an average maturity between five and ten years. OpCap
Advisors does not attempt to forecast interest rates in managing the
Portfolio.
Q What are the potential rewards of investing in the Portfolio?
A The Portfolio consists of the highest quality debt instruments. Since the
average maturity of the Portfolio's investments are between five and ten
years, the Portfolio should be less volatile than a longer term bond fund.
RISKS
Q What are the risks of investing in the Portfolios?
A The Equity, Blended Equity, Large Cap Growth, Small Cap Growth, Target, Mid
Cap, Small Cap, Innovation, Global Equity, Managed and Balanced Portfolios
invest principally in equity securities which may be affected by the
following:
Stock Market Volatility - The stock market in general may fluctuate in
response to political, market and economic developments and you can lose
money on your investments.
17
<PAGE>
Equity investors should have a long-term investment horizon and should be
prepared for the ups and downs of the stock market.
Stock Picking - The Advisors may select stocks that have prices that turn out
not to be undervalued or do not achieve expectations for growth in income or
revenues.
Issuer Changes - Changes in the financial condition of an issuer or changes
in economic conditions that affect a particular type of issuer can affect the
value or credit quality of an issuer's securities.
Small Cap and Mid Cap Volatility - Mid cap stocks are more volatile and have
less trading volume than large cap stocks. Small cap stocks are more volatile
and have less trading volume than both large cap and mid cap stocks.
Sector Risk - The Advisors are a bottom up investment managers. That means
that they select securities for a Portfolio based on the investment merits of
a particular issue rather than the business sector.
Investment Styles - Value or growth stocks may be out of favor for a period
of time. The Advisors are long-term investors and their investment style can
produce poor returns for a period of time.
Asset Allocation Risk - The Managed and Balanced Portfolios invest in a mix
of equity and fixed income securities. The portfolio managers of those
Portfolios can make the wrong allocation decisions.
Foreign Exposure - When selecting foreign securities for the Portfolios, the
Advisors use approximately the same standards that they set for U.S. issuers.
Foreign securities, foreign currencies and securities issued by U.S. entities
with substantial foreign operations may have additional risks than U.S.
securities. This risk is greater for the Global Equity Portfolio which
invests on a worldwide basis.
Political Risk - Foreign governments can take over the assets or operations
of a company or may impose taxes or limits on the removal of the Portfolio's
assets from that country.
. Currency risk - The value of securities held in foreign currencies will be
affected by changes in the value of that currency.
. Liquidity - Some foreign markets are less liquid and more volatile than
the U.S. stock market.
. Limited information - There may be less public information about foreign
issuers than there is about U.S. issuers.
. Settlement and clearance - Some foreign markets experience delays in
settlement. These delays could cause the Portfolio to miss investment
opportunities or to be unable to sell a security.
. Euro - The effect of the Euro on international markets has not yet been
determined.
. Emerging Markets - There are greater risks of unstable governments and
economies 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.
18
<PAGE>
To the extent that the Portfolios invest in debt securities, the
Portfolios are exposed to these risks:
. Interest rate risk - The risk that changes in interest rates will affect
the value of fixed income securities in the Portfolio.
. Prepayment risk - The risk that the holder of a mortgage underlying a
mortgage backed security will prepay principal.
. Credit risk - The risk that an issuer of a fixed income security will be
unable to pay principal and interest payments when they are due.
To the extent that the Global Equity Portfolio or the Balanced Portfolio
invests in lower grade debt securities, you should know that lower grade debt
may have the following additional risks:
. more volatility
. less liquidity
. greater risk of issuer default or insolvency.
INVESTMENT POLICIES
Q Can a Portfolio change its investment objective and investment policies?
A Fundamental policies of a Portfolio cannot be changed without the approval of
a majority of the outstanding voting shares of the Portfolio. A Portfolio's
investment objective is a fundamental policy. Investment restrictions that
are fundamental policies are listed in the Statement of Additional
Information. Investment policies are not fundamental and can be changed by
the Fund's Board of Trustees.
Q Can the Portfolios use derivative instruments?
A Yes. The Equity, Blended Equity, Large Cap Growth, Small Cap Growth, Target,
Mid Cap, Small Cap, Innovation, Global Equity, Managed and Balanced
Portfolios may use the following derivative instruments:
. futures contracts
. options on futures contracts
. forward foreign currency contracts
. covered calls written on individual securities
. uncovered calls and puts
. options on stock indices.
The Equity, Mid Cap, Small Cap, Global Equity and Balanced Portfolios do not
expect to use derivative instruments significantly, if at all. The Blended
Equity, Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios
will sometimes use derivative instruments as part of a strategy designed to
reduce exposure to other risks, such as interest risk or currency risk, and may
use derivative instruments to meet their investment objectives.
19
<PAGE>
Q What are the risks of derivative instruments?
A Derivative instruments can reduce the return of a Portfolio if :
. Its investment adviser uses a derivative instrument at the wrong time.
. The prices of a Portfolio's futures or options positions are not
correlated with its other investments.
. A Portfolio cannot close out a position because of an illiquid market.
Q Do the Portfolios expect to engage in short-term trading?
A The Portfolios do not expect to engage in frequent short-term trading. The
Financial Highlights table in this prospectus shows the turnover rates during
prior fiscal years for the Portfolios that were active during this period.
Q Can the Portfolios vary from their investment goals?
A When a Portfolio's investment adviser or subadviser thinks market or economic
conditions are adverse, it may invest up to 100% of its assets in defensive
investments such as U.S. Government securities and money market instruments.
To the extent that a Portfolio takes a defensive position, it will not be
pursuing its investment objective.
FUND MANAGEMENT
OpCap Advisors
- --------------
The Board of Trustees of the Fund has hired OpCap Advisors to serve as
manager of the Fund.
OpCap Advisors is a subsidiary of Oppenheimer Capital, an investment
advisory firm with approximately $56 billion of assets under management as of
September 30, 1999. They are indirect wholly-owned subsidiaries of PIMCO
Advisors L.P. The mailing address is 1345 Avenue of the Americas, New York, New
York 10105.
The general partners of PIMCO Advisors L.P. are PIMCO Partners G.P. and
PIMCO Advisors Holding L.P.("PAH"). 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 L.P. PIMCO Partners, G.P. is
the sole general partner of PAH.
On October 31, 1999, PIMCO Advisors L.P., PAH and Allianz AG ("Allianz")
announced that they had reached a definitive agreement pursuant to which Allianz
will acquire majority ownership of PIMCO Advisors L.P. and its subsidiaries,
including OpCap Advisors (the "Allianz Transaction"). Under the terms of the
transaction, Allianz will acquire all of PAH, the publicly traded general
partner of PIMCO Advisors L.P. Pacific Life Insurance Company will retain an
approximately 30% interest in PIMCO Advisors L.P. The Allianz Transaction is
currently expected to be completed by the end of the first quarter of 2000.
Allianz is the world's second largest insurance company and a leading
provider of financial services, particularly in Europe, and is represented in 68
countries world-wide through subsidiaries, branch and representative offices,
and other affiliated entities. Allianz currently has assets under management of
more than $390 billion, and in its last fiscal year wrote approximately $50
billion in gross insurance premiums. After consummation of the transaction, the
combined firms will have over $650 billion in assets under management.
Affiliates of Allianz currently include Dresdner Bank AG, Deutsche Bank AG,
Munich Re, and Hypo Vereinsbank. These entities, as well as certain broker-
dealers controlled by or affiliated with these entities, such as Bankers Trust
Company and BT Alex Brown, Inc. are considered the "Affiliated Brokers". Once
the Allianz transaction is consummated, absent an SEC exemption or other relief,
the Fund's Portfolios would generally be precluded from effecting principal
transactions with the Affiliated Brokers, and each Portfolio's ability to
purchase securities being underwritten by an Affiliated Broker or to utilize the
Affiliated Brokers for agency transactions would be subject to restrictions.
OpCap Advisors does not believe that the restrictions on transactions with the
Affiliated Brokers described above will materially adversely affect its ability,
post-closing, to provide services to the Fund, the ability of the Portfolios to
take advantage of market opportunities, or the overall performance of the
Portfolios.
The consummation of the Allianz Transaction is subject to the approval of
the public unitholders of PAH, as well as to certain regulatory and client
approvals, and other conditions customary to transactions of this kind.
This Prospectus will be supplemented or revised if the Allianz Transaction
does not occur substantially as set forth above.
OpCap Advisors has been in business as an investment adviser since 1987 and
Oppenheimer Capital has been in business as an investment adviser since 1969.
OpCap Advisors manages the investments of certain Portfolios (and places
brokerage orders) and conducts the business affairs of the Fund. Employees of
Oppenheimer Capital as well as employees of OpCap Advisors perform these
services.
Each Portfolio pays OpCap Advisors fees in return for providing or arranging
for the provision of investment advisory services. In the case of the Blended
Equity, Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios for
which OpCap Advisors has retained PIMCO Equity Advisors as subadvisor, OpCap
Advisors (and not the Fund) pays a portion of the advisory fees its receives to
PIMCO Equity Advisors in return for its services. OpCap also pays a portion of
its advisory fees to PIMCO in return for the advisory services PIMCO performs
for the
20
<PAGE>
Managed Portfolio. The Portfolios of the Fund listed below paid OpCap Advisors
the following fees as a percentage of average daily net assets during the fiscal
year ended December 31, 1999:
<TABLE>
<S> <C>
Equity Portfolio 0.80%
Mid Cap Portfolio 0.10%
Small Cap Portfolio 0.80%
Global Equity Portfolio 0.80%
Managed Portfolio* 0.77%
U.S. Government Income Portfolio 0.60%
</TABLE>
*OpCap paid PIMCO a fee equal to 0.25% of the average daily net assets
of the Managed Portfolio during the fiscal year ended December 31, 1999 for the
advisory services PIMCO performed for the Portfolio.
OpCap Advisors waived a portion of its fees from the MidCap Portfolio
for the fiscal year ended December 31, 1999. Absent such waiver the advisory
fee for the MidCap Portfolio would have been 0.80% of the average daily net
assets of the Portfolio.
The Fund pays OpCap Advisors at the annual rate of .80% of the first
$400 million of average net assets, .75% on the next $400 million of average net
assets and .70% of assets in excess of $800 million with respect to the Equity,
Global Equity, Managed, Small Cap, Mid Cap, Balanced, Blended Equity, Large Cap
Growth, Small Cap Growth, Target and Innovation Portfolios. The rate applicable
to the U.S. Government Income Portfolio is .60% of average net assets.
OpCap Advisors will pay PIMCO Equity Advisors fees at the annual rate
of .40% of the first $400 million of average net assets, .375% on the next $400
million of average net assets and .35% of assets in excess of $800 million with
respect to the Blended Equity, Large Cap Growth, Small Cap Growth, Target and
Innovation Portfolios for investment advisory services PIMCO Equity Advisors
renders to those Portfolios.
PIMCO Equity Advisors
- ---------------------
PIMCO Equity Advisors acts as subadviser to the Large Cap Growth, Small Cap
Growth, Target and Innovation Portfolios. OpCap Advisors has also retained the
PIMCO Equity Advisors to manage a portion of the investments of the Blended
Equity Portfolio. PIMCO Equity Advisors is a division of PIMCO Advisors, which
has its principal offices at 800 Newport Center Drive, Newport Beach, California
92660. Organized in 1987, PIMCO Advisors provides investment management and
advisory services to private accounts of institutional and individual clients
and to mutual funds. As of September 30, 1999 PIMCO Advisors and its subsidiary
partnership had approximately $256 billion in assets under management.
21
<PAGE>
Portfolio Managers
- ------------------
<TABLE>
<S> <C>
Louis Goldstein has been the portfolio manager of the Mid Cap
Portfolio since its inception. Louis Goldstein is a Senior
[PHOTO] Vice President of Oppenheimer Capital. He joined Oppenheimer
Capital in 1991. He earned a BS Summa Cum Laude and a MBA in
Finance with honors from the Wharton School of Business.
Timothy McCormack has been a portfolio manager of the Small Cap
Portfolio since May 1996. Mr. McCormack, Senior Vice President
of Oppenheimer Capital, joined Oppenheimer Capital in 1994.
[PHOTO] Prior to this time, he worked as a security analyst with U.S.
Trust Company from March 1993 to July 1994 and as a security
analyst with Gabelli and Company. He earned a BS in Finance from
Georgetown University and 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
[PHOTO] funds. Prior to joining Oppenheimer Capital, he was Director
of Research and Associate Portfolio Manager at Palisade Capital
Management. From 1990 to 1993, he was a Generalist for
Cazenove & Co. Previously Mr. Degenhart was a Special
Situations Analyst at Argus Research Corp. for over three
years. He has a BS degree in marketing from the University of
Scranton.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
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 Oppenheimer Capital in
February 1998 as a Senior Vice President. Before joining
[PHOTO] Oppenheimer Capital, he was General Partner at Omega Advisors,
a hedge fund, from September 1996 to February 1998 and Senior
Vice President and International portfolio manager of Lazard
Freres Asset Management from December 1992 to August 1996. Mr.
Glasebrook joined Oppenheimer Capital in 1991. He has a BA
from Kenyan College and a MBA from the Harvard School of
Business Administration. Richard Glasebrook has been the
portfolio manager of the Managed Portfolio since its inception.
Colin Glinsman, Chief Investment Officer and Managing Director
of Oppenheimer Capital, is the portfolio manager of the
[PHOTO] Balanced Portfolio. He joined Oppenheimer Capital in 1989 as a
securities analyst. He has a BA from Yale University and a MS
from New York University.
Vikki Hanges, Senior Vice President of Oppenheimer Capital, has
been the portfolio manager of the U.S. Government Portfolio
[PHOTO] since its inception. She joined Oppenheimer Capital in 1982.
Ms. Hanges has a BS from Cornell University.
Kenneth W. Corba has been the portfolio manager of the Large Cap
Growth Portfolio since its inception. Mr. Corba, Chief Investment
Officer, Managing Director of PIMCO Equity Advisors, joined PIMCO
Equity Advisors in January 1999. Prior to this time, he was the
[PHOTO] Chief Investment Officer for Eagle Asset Management from March 1995
to March 1999 and Director of the Capital Management Group at Stein
Roe & Farnham from June 1984 to February 1995. He has a BA and MBA
from the University of Michigan.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
Michael F. Gaffney, a Senior Portfolio Manager of PIMCO Equity
Advisors, has been the portfolio manager of the Small Cap
Growth Portfolio since its inception. Mr. Gaffney joined PIMCO
[PHOTO] Equity Advisors in January 1999. Prior to this time, he was the
Senior Vice President and Portfolio Manager for Alliance Capital
Management from September 1987 to January 1999. He has a BS Magna
Cum Laude from St. John's University and a MBA from New York University.
Dennis McKechnie, a Certified Financial Analyst, is a Senior
Portfolio Manager of PIMCO Equity Advisors. Mr. McKechnie has
been the portfolio manager of the Innovation Portfolio since
[PHOTO] its inception and joined PIMCO Equity Advisors in January 1999.
He has eight years of investment management experience as the
Vice President for Columbus Circle Investors from April 1991 to
January 1999. He has a BS in Electrical Engineering from Purdue
University and a MBA from Columbus Business School.
Jeffrey D. Parker, Portfolio Manager of PIMCO Equity Advisors,
has been the portfolio manager of the Target Portfolio since
its inception. Mr. Parker joined PIMCO Equity Advisors in
January 1999. Prior to this time, he was an Assistant Portfolio
[PHOTO] Manager for Eagle Asset Management from July 1996 to December 1998
and a Senior Consultant specializing in health care and
technology for Andersen Consulting from February 1991 to
May 1994. He has a BBA from the University of Miami and a
MBA from Vanderbilt University.
William H. Gross, Managing Director and Chief Investment Officer
of PIMCO, has been the portfolio manager of the Managed
[PHOTO] Portfolio since its inception. Mr. Gross joined PIMCO in June 1971
and is a founding partner of PIMCO.
</TABLE>
SHARE PRICE
The Fund calculates each Portfolio's share price, called its net asset
value, on each business day that the New York Stock Exchange is open after the
close of regular trading (generally 4:00 p.m. Eastern Standard Time). Net asset
value per share is computed by adding up the total value of a Portfolio's
investments and other assets, subtracting its liabilities and then dividing by
the number of shares outstanding.
Total Portfolio Assets - Liabilities
Net Asset Value= ---------------------------------------
Number of Portfolio Shares Outstanding
The Fund uses the market prices of securities to value a Portfolio's
investments unless securities do not have market quotations or are short-term
debt securities. When the Fund uses fair value to price a security, the Fund
reviews the pricing method with the Fund's Board. The Fund prices short-term
investments that mature in less than
24
<PAGE>
60 days using amortized cost or amortized value. Foreign securities trade on
days when the Portfolios do not price their shares so the net asset value of a
Portfolio's shares may change on days when shareholders will not be able to buy
or sell shares of the Portfolio. If an event occurs after the close of the New
York Stock Exchange that the Fund believes changes the value of a security, then
the Fund will value the security at fair value.
DISTRIBUTIONS AND TAXES
This discussion is about distributions to the Portfolio's
shareholders, which are variable accounts of insurance companies and qualified
pension and retirement plans. You should read the prospectus for the variable
account for information about distributions and federal tax treatment for
contract owners of variable products.
Each Portfolio pays dividends from its net investment income and
distributes any net capital gains that it has realized at least once a year.
The U.S. Government Income Portfolio pays dividends from its net investment
income once a month.
YEAR 2000 ISSUES
Many of the services provided to the Fund depend on the smooth
functioning of computer systems. Many systems in use today cannot distinguish
between the year 1900 and the year 2000 unless their hardware and software have
been properly remediated. Should any of the computer systems of the Fund's
material service providers fail to process information properly, this could have
an adverse impact on the Fund's operations and services provided to
shareholders. OpCap surveyed the Fund's material service providers and believes
that, on the basis of the information supplied, that the service providers will
not be materially adversely affected by the so-called "year 2000 problem."
However, there can be no assurance that the problem has been corrected in all
respects and that the Fund's operations and services provided to shareholders
will not be adversely affected, nor can there be any assurance that the year
2000 problem will not have an adverse effect on the entities whose securities
are held by the Portfolios or on domestic or global equity markets or economies,
generally. The Portfolios will attempt to maintain sufficient liquidity to
satisfy actual or anticipated redemption activity.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolios' financial performance. Certain information reflects financial
results for a single Portfolio share. The total returns in the table represent
the rate that an investor would have earned (or lost) on an investment in a
Portfolio (assuming reinvestment of all dividends and distributions). The
information in the financial highlights table for the fiscal periods ended on or
before December 31, 1998 has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the corresponding Portfolios'
financial statements, is included in the Fund's SAI, which is available upon
request. The information in the financial highlights table for the interim
period commencing on January 1, 1999 and ending on December 31, 1999, along with
the corresponding Portfolios' financial statements are unaudited. The interim
financial statements are included in the Fund's SAI.
25
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL
HIGHLIGHTS For a share
outstanding throughout each
period:
Year ended December 31
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 38.70 $ 36.52 $ 30.07 $ 25.05 $ 18.12
--------- --------- --------- --------- ---------
Income (loss) from Investment
Operations:
Net investment income 0.25 0.39 0.39 0.21 0.31
Net realized and unrealized gain
(loss) on investments 0.62 3.84 7.34 5.52 6.71
--------- --------- --------- --------- ---------
Total income (loss) from
investment operations 0.87 4.23 7.73 5.73 7.02
--------- --------- --------- --------- ---------
Dividends and Distributions to
Shareholders from:
Net investment income (0.36) (0.39) (0.28) (0.24) (0.09)
Net realized gains (1.65) (1.66) (1.00) (0.47) --
--------- --------- --------- --------- ---------
Total dividends and distributions to
shareholders (2.01) (2.05) (1.28) (0.71) (0.09)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 37.56 $ 38.70 $ 36.52 $ 30.07 $ 25.05
========= ========= ========= ========= =========
Total Return (2) 2.51 11.9% 26.6% 23.4% 38.9%
========= ========= ========= ========= =========
Net assets, end of period (000's) $ 70,512 $ 48,711 $ 28,820 $ 19,843 $ 9,036
Ratio of net operating expenses to
average net assets (4) 0.91% 0.94% 0.99% 0.93%(5) 0.72%(5)
Ratio of net investment income to
average net assets 0.86% 1.36% 1.25% 1.29%(5) 1.74%(5)
Portfolio Turnover 84% 29% 32% 36% 31%
<CAPTION>
September 16, 1994 (1) to
December 31, 1994
-------------------------
<S> <C>
Net asset value, beginning of period $ 18.57
---------
Income (loss) from Investment
Operations:
Net investment income 0.09
Net realized and unrealized gain
(loss) on investments (0.54)
---------
Total income (loss) from
investment operations (0.45)
---------
Dividends and Distributions to
Shareholders from:
Net investment income --
Net realized gains --
---------
Total dividends and distributions to
shareholders --
Net asset value, end of period $ 18.12
=========
Total Return (2) (2.4)%
=========
Net assets, end of period (000's) $ 4,281
Ratio of net operating expenses to
average net assets (4) 0.72% (3,5)
Ratio of net investment income to
average net assets 1.80% (3,5)
Portfolio Turnover 6%
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized.
(4) For fiscal periods ending after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all 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% (annualized) and 0.43%, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
26
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
For the Year
Ended February 9, 1998 (1) to
December 31, 1999 December 31, 1998
----------------- ----------------------
(unaudited)
<S> <C> <C>
Net asset value, beginning of period $9.79 $10.00
---------- -----------
Income (loss) from Investment
Operations:
Net investment income 0.05 0.05
Net realized and unrealized loss on
investments 2.07 (0.21)
---------- -----------
Total loss from investment operations 2.12 (0.16)
---------- -----------
Dividends and Distributions to
shareholders from:
Net investment income (0.05) (0.05)
Net realized gains (0.23) --
---------- -----------
Total dividends to shareholders (0.28) (0.05)
---------- -----------
Net asset value, end of period $11.63 $9.79
---------- -----------
Total Return (2) 21.6% (1.6)%
---------- -----------
Net assets, end of period (000's) $5,382 $1,885
Ratio of net operating expenses to
average net assets (4,5) 1.03% 1.05% (3)
Ratio of net investment income to
average net assets 0.62% 0.78% (3)
Portfolio Turnover 92% 38%
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized
(4) Inclusive of expenses offset by earnings credits from custodian bank.
(5) During the periods 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 loss to average net
assets would have been 1.70% and (0.05)%, respectively for the year ended
December 31, 1999, and 4.28% and (2.46)% (annualized), respectively, for
the period February 9, 1998 (commencement of operations) to December 31,
1998.
27
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------- September 16, 1994 (1)
Year ended December 31, to December 31, 1994
------------------------------------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $23.10 $26.37 $22.61 $19.91 $17.38 $17.49
-------- -------- -------- ------- ------- ------
Income (loss) from Investment
Operations: 0.14 0.14 0.08 0.14 0.26 0.06
Net investment income
Net realized and unrealized gain (loss)
On investments (0.57) (2.38) 4.73 3.45 2.37 (0.17)
-------- -------- -------- ------- ------- ------
Total income (loss) from investment (0.43) (2.24) 4.81 3.59 2.63
operations (0.11)
-------- -------- -------- ------- ------- ------
Dividends and Distributions to
Shareholders from:
Net investment income (0.15) (0.09) (0.13) (0.25) (0.05) ---
Net realized gains -- (0.94) (0.92) (0.64) (0.05) ---
-------- -------- -------- ------- ------- ------
Total dividends and distributions to
shareholders
(0.15) (1.03) (1.05) (0.89) (0.10) ---
-------- -------- -------- ------- ------- ------
Net asset value, end of period $22.52 $23.10 $26.37 $22.61 $19.91 $17.38
======== ======== ======== ======== ======== ========
Total Return (2) (1.8)% (9.0)% 22.2% 18.7% 15.2% (0.6)%
======== ======== ======== ======== ======== ========
Net assets, end of period (000's) $151,289 $155,506 $110,565 $34,257 $16,004 $9,210
Ratio of net operating expenses
To average net assets (4) 0.89% 0.88% 0.97% 0.93% (5) 0.74% (5) 0.74% (3,5)
Ratio of net investment income
To average net assets 0.61% 0.72% 0.64% 1.03% (5) 1.75% (5) 1.22% (3,5)
Portfolio Turnover 99% 51% 68% 50% 69% 32%
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized
(4) For fiscal periods ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net 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% (annualized), and 0.32% respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
28
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
March 1, 1995 /1/
Year ended December 31, to December 31, 1995
------------------------------------------------ ---------------------
1999 1998 1997 1996
-------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.43 $14.32 $13.23 $11.61 $ 10.00
-------- ------- ------- ------- ------------------
Income from Investment Operations:
Net investment income 0.12 0.12 0.06 0.04 0.05
Net realized and unrealized gain
on investments 3.97 1.78 1.79 1.70 1.83
-------- ------- ------- ------- ------------------
Total income from Investment Operations 4.09 1.90 1.85 1.74 1.88
-------- ------- ------- ------- ------------------
Dividends and Distributions to Shareholders
from Net investment income (0.26) (0.18) (0.04) (0.05) (0.03)
In excess of net investment income -- -- (0.03) - -
From net realized gains (2.70) (0.61) (0.69) (0.07) (0.24)
-------- ------- ------- ------- ------------------
Total dividends and distributions to shareholders (2.96) (0.79) (0.76) (0.12) (0.27)
-------- ------- ------- ------- ------------------
Net asset value, end of period $16.56 $15.43 $14.32 $13.23 $11.61
======== ======= ======= ======= ==================
Total Return (2) 26.5% 13.3% 14.0% 15.0% 18.9%
======== ======= ======= ======= ==================
Net assets, end of period (000's) $43,412 $34,777 $25,874 $16,972 2,891
Ratio of net operating expenses
to average net assets (4) 1.10% 1.13% 1.19%/(5)/ 1.42%/(5)/ 1.25%/(3,5)/
Ratio of net investment income
to average net assets 0.48% 0.79% 0.45%/(5)/ 0.81%/(5)/ 1.02%/(3,5)/
Portfolio Turnover 83% 55% 53% 40% 67%
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized
(4) Inclusive of expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income
(loss) to average net assets would have been 1.20% and 0.44%, respectively,
for the year ended December 31, 1997, 1.83% and 0.22%, respectively, for
the year ended December 31, 1996 and 3.94% and (1.67)% (annualized),
respectively, for the period March 1, 1995 (commencement of operations) to
December 31, 1995.
29
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
September 16, 1994 (1)
Year ended December 31, to December 31, 1994
----------------------- -----------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $43.74 $42.38 $36.21 $30.14 $20.83 $21.80
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 0.56 0.60 0.34 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments 1.47 2.40 7.45 6.31 9.02 (1.11)
------ ------ ------ ------ ------ ----
Total income (loss) from Investment
Operations 2.03 3.00 7.79 6.74 9.44 (0.97)
------ ------ ------ ------ ------ ----
Dividends and Distributions to
Shareholders:
Net investment income (0.65) (0.33) (0.40) (0.41) (0.13)
Net realized gains (1.47) (1.31) (1.22) (0.26) --- ---
------ ------ ------ ------ ------ ----
Total dividends and distributions to
shareholders (2.12) (1.64) (1.62) (0.67) (0.13) ---
------ ------ ------ ------ ------ ------
Net asset value, end of period $43.65 $43.74 $42.38 $36.21 $30.14 $20.83
====== ====== ====== ====== ====== ======
Total Return (2) 5.0% 7.1% 22.3% 22.8% 45.6% (4.4)%
====== ====== ====== ====== ====== ======
Net assets, end of period (000's) $804,467 $777,087 $466,791 $180,728 $99,188 $54,943
Ratio of net operating expenses
to average net assets (4) 0.83% 0.82% 0.87% 0.84%(5) 0.66%(5) 0.66%(3,5)
Ratio of net investment income
to average net assets 1.27% 1.74% 1.42% 1.66%(5) 1.85%(5) 2.34%(3,5)
Portfolio Turnover 38% 37% 32% 27% 22% 8%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized.
(4) For fiscal periods ending after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all 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 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.
30
<PAGE>
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
January 3, 1995 (1)
Year ended December 31, to December 31, 1995
----------------------- --------------------
1999 1998 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.66 $10.51 $10.38 $10.62 10.00
------ ------ ------ ------ -----
Income (loss) from Investment Operations:
Net investment income 0.49 0.53 0.57 0.55 0.60
Net realized and unrealized gain (loss) on
investments (0.66) 0.31 0.14 (0.24) 0.68
------ ------ ------ ------ -----
Total income from investment operations (0.17) 0.84 0.71 0.31 1.28
------ ------ ------ ------ -----
Dividends and Distributions to shareholders from:
Net investment income (0.49) (0.53) (0.57) (0.55) (0.60)
Net realized gains -- (0.16) (0.01) -- (0.06)
------ ------ ------ ------ -----
Total dividends and distributions to shareholders (0.49) (0.69) (0.58) (0.55) (0.66)
------ ------ ------ ------ -----
Net asset value, end of period $10.00 $10.66 $10.51 $10.38 $10.62
====== ====== ====== ====== ======
Total Return (2) (1.8)% 8.1% 7.0% 3.0% 13.1%
====== ====== ====== ====== ======
Net assets, end of period (000's) $9,830 $10,542 $6,983 $3,422 $1,442
Ratio of net operating expenses
to average net assets (4) 0.95% 1.00% 0.93% (5) 0.96% (5) 0.75% (3,5)
Ratio of net investment income
to average net assets 4.78% 4.96% 5.51%(5) 5.27% 5.75% (3,5)
Portfolio Turnover 69% 80% 80% 31% 65%
</TABLE>
- -------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized.
(4) Inclusive of expenses offset by earnings credits from custodian bank.
(5) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.19% and 4.77%, respectively, for the
year ended December 31, 1998, 1.06% and 5.37%, respectively, for the year
ended December 31, 1997, 2.34% and 3.87%, respectively, for the year
ended December 31, 1996, and 4.73% (annualized) and 1.77%, (annualized)
respectively, for the period January 3, 1995 (commencement of operations)
to December 31, 1995.
31
<PAGE>
OCC ACCUMULATION TRUST
MANAGED BY
[OPCAP ADVISORS LOGO]
1999 Annual Report - Unaudited
The stock market in 1999 was characterized by two contradictory trends: the
rapid price escalation of many technology stocks, especially those associated
with e-commerce and the Internet, and a widespread malaise among stocks in most
other industry sectors. The Standard & Poor's 500 Index (the "S&P 500") rose
21.0% during the year, returning more than 20% for a record fifth consecutive
year. However, this performance distorted the overall direction of the market.
Without its technology stock component, the S&P 500 would have been down 1% in
1999. In fact, approximately 60% of the stocks on the New York Stock Exchange
declined in price during the year.
The year was especially challenging for value investors such as ourselves.
Stocks of many quality companies with strong competitive positions, high cash
flow and favorable earnings prospects--the types of stocks in which we invest--
were out of favor, trailing the market indexes by a wide margin. As a result,
our investment returns generally fell short of our benchmarks in 1999.
We have always been thoughtful in our value style to give consideration to
companies across the breadth of the market, including technology companies. In
fact, we did well with several technology investments during the past year,
including Computer Associates and Motorola in the United States and Ericsson and
Alcatel in Europe. However, in the current ebullient market for technology
stocks, it has become increasingly difficult to find value in the sector.
Regardless of whether the current technology stock craze turns out to be a
bubble that bursts, the technology industry is growing rapidly and creating
enormous economic wealth. Our challenge as value investors, therefore, is to
identify solid companies that stand to benefit from this growth.
At OpCap Advisors, we continue to invest in our people and our operation to
ensure we have the necessary resources to meet this challenge. Our firm has
moved aggressively to hire additional investment personnel and has made
important reallocations of people and resources to best apply investment skills
not only to technology stocks, but to other industry sectors as well. We have
established "sector" groups, involving the integration of our domestic and
international analysts, to ensure timely and complete coverage of investment
opportunities wherever they may exist.
By remaining disciplined in our value style, and taking the necessary actions to
keep pace with an ever-evolving stock market, we are focused on delivering
excellent long-term investment results without taking large risks. We believe
many of the stocks we own are significantly undervalued, providing opportunities
for substantial profits as undervalued securities of financially solid, growing
companies return to favor.
As the new year begins, the U.S. economy remains strong, perhaps too strong, and
there are indications of excessive optimism in the stock market. Inflation has
been kept low for the past several years by an internationally competitive
environment, major improvements in technology, corporate mergers and
restructurings, and low inflation expectations. Recently, however, some of these
factors have reversed. Commodity prices have rebounded strongly, while energy
and import prices are on the rise. These factors suggest to us that inflationary
pressures could increase somewhat in the months ahead and that the Federal
Reserve is likely to raise interest rates further, on top of the three rate
increases already implemented since June 1999. We believe these conditions will
favor our value style of investing, which emphasizes companies that can generate
a high level of cash flow throughout the economic cycle.
1
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO - Unaudited
The Equity Portfolio provided a total return of 2.5% in 1999, compared with a
21.0% increase for the Standard & Poor's 500 Index with dividends included (the
"S&P 500"). The S&P 500 is an unmanaged index of 500 of the largest corporations
weighted by market capitalization. During the second half of the year, the
Portfolio's return of (6.4)% compared with a 7.7% increase in the S&P 500 Index.
In trailing its benchmarks, the Portfolio's results were affected by a difficult
environment for value stocks, which lagged the returns of growth stocks during
the period. In addition, results for the Portfolio were affected by its
significant holdings of financial stocks, one of the stock market's weakest
sectors in 1999. Holdings such as Freddie Mac (home mortgage insurance) and XL
Capital (specialty insurance) declined in price due primarily to investor
concerns about the potential impact of rising interest rates on their business
results. Apart from the Portfolio's financial holdings, stocks which detracted
from performance included Waste Management (solid waste collection and disposal)
and American Home Products (pharmaceuticals, over-the-counter healthcare
products and agricultural products), both which fell because of company-specific
problems.
Some of the stocks which contributed positively to performance in the year
included Computer Associates International (software), McDonald's (fast food)
and Minnesota Mining & Manufacturing (diversified technology-based company).
Another contributor was Citigroup, the global financial services company, which
bucked the downward trend of the financial stocks and advanced in price,
propelled by continued strong earnings growth.
For the three years ended December 31, 1999, the Portfolio provided an average
annual total return of 13.3%, compared with 27.6% for the S&P 500. The
Portfolio's average annual total return of 20.0% for the five years ended
December 31, 1999 compared with 28.5% for the S&P 500. In the ten years ended
December 31, 1999, the Portfolio provided an average annual total return of
15.5%* versus 18.2% for the S&P 500. From its inception on August 1, 1988
through December 31, 1999, the Portfolio delivered an average annual total
return of 15.7%* compared with 19.0% for the S&P 500 Index. Returns for the
Portfolio take into account expenses incurred by the Portfolio, but not other
charges imposed by the Variable Accounts.
The Portfolio invests in a diverse group of stocks chosen for their superior
business characteristics and reasonable prices. Our goal is to generate
favorable long-term investment results without taking large risks. Although
results in 1999 did not meet our expectations, we believe the Portfolio is well
positioned to deliver strong returns over time through its ownership of quality
undervalued securities which offer significant appreciation potential.
In the fourth quarter of 1999, we established new positions in Textron (a
global, multi-industry company which produces business aircraft, helicopters,
automotive components, industrial tools and other products and services) and
Unocal (diversified energy company). We believe both companies are well managed,
have favorable business prospects and are significantly undervalued in relation
to their earnings and cash flow. We sold the Portfolio's investments in Dover
and Raytheon.
We have been building a position in the telecommunications sector by investing
in well-managed companies with strong prospects such as Sprint.
Telecommunications stocks represented 10.1% of the Portfolio's net assets at the
end of December 1999, up from 4.5% at the end of July.
At December 31, 1999, the Portfolio's net assets were allocated 94.8% to common
stocks and 5.2% to short-term investments. The Portfolio's five largest equity
positions were Computer Associates International, which designs and markets
computer software, representing 4.9% of the Portfolio's net assets; Freddie Mac,
the second largest
- --------------
* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"),
was effectively divided into two investment funds--the Old Trust and the
present OCC Accumulation Trust (the "Present Trust")--at which time the Present
Trust commenced operations. The total net assets of the Equity Portfolio
immediately after the transaction were $86,789,755 in the Old Trust and
$3,764,598 in the Present Trust. For the period prior to September 16, 1994,
the performance figures for the Equity Portfolio of the Present Trust reflect
the performance of the Equity Portfolio of the Old Trust.
2
<PAGE>
insurer of home mortgages in the United States, 4.5% of net assets; du Pont, a
diversified technology and industrial company, 4.0% of net assets; Citigroup, a
leading global banking, insurance and other financial services company, 3.6% of
net assets; and Sprint (FON Group), which provides long-distance telephone
services, 3.6% of net assets.
Major industry positions at the end of December were: financial services,
representing 11.9% of the Portfolio's net assets; telecommunications, 10.1% of
net assets; banking, 8.2% of net assets; technology, 6.9% of net assets; and
food services, 6.1% of net assets.
We remain confident that our value style will generate excellent results over
time.
3
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCK -- 94.3%
Aerospace/Defense -- 2.3%
39,000 Boeing Co........................... $1,620,937
----------
Banking -- 8.2%
15,900 Chase Manhattan Corp.*.............. 1,235,231
60,007 FleetBoston Financial Corp.*........ 2,088,994
60,330 Wells Fargo & Co.................... 2,439,594
----------
5,763,819
----------
Chemicals -- 5.4%
24,000 du Pont (E.I.) de Nemours & Co...... 2,832,625
28,000 Monsanto Co......................... 997,500
----------
3,830,125
----------
Conglomerates -- 4.7%
26,000 Minnesota Mining & Manufacturing Co. 2,544,750
10,500 Textron Inc......................... 805,219
----------
3,349,969
----------
Consumer Products -- 4.3%
30,000 Avon Products Inc................... 990,000
111,000 Kroger Co........................... 2,076,250
----------
3,066,250
----------
Drugs & Medical Products -- 3.8%
45,000 American Home Products Corp......... 1,774,687
35,084 Becton, Dickinson & Co.............. 938,497
----------
2,713,184
----------
Electronics -- 5.3%
38,000 Emerson Electric Co................. 2,180,250
16,000 First Data Corp..................... 789,000
16,000 Rockwell International Corp......... 766,000
----------
3,735,250
----------
Energy -- 1.2%
9,200 Anadarko Petroleum Corp............. 313,950
15,900 Unocal Corp......................... 533,644
----------
847,594
----------
Financial Services -- 11.9%
46,085 Citigroup, Inc...................... 2,560,598
19,912 Countrywide Credit Industries, Inc.. 502,778
67,620 Federal Home Loan Mortgage Corp..... 3,182,366
57,500 Household International............. 2,141,875
----------
8,387,617
----------
Food Services -- 5.9%
58,715 Diageo plc ADR...................... 1,878,880
56,000 McDonald's Corp..................... 2,257,500
----------
4,136,380
---------
</TABLE>
4
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 -
(continued) Unaudited
<TABLE>
<CAPTION>
Shares Value
- ------ -----------
<S> <C> <C>
COMMON STOCKS (concluded)
Health & Hospitals -- 1.6%
23,000 Cardinal Health Inc..................... $ 1,101,125
-----------
Insurance -- 3.0%
33,244 AFLAC, Inc.............................. 1,568,701
31,161 Conseco, Inc............................ 557,003
-----------
2,125,704
-----------
Machinery/Engineering -- 2.6%
39,000 Caterpillar, Inc........................ 1,835,437
-----------
Manufacturing -- 2.7%
23,000 Alcoa, Inc.............................. 1,909,000
-----------
Media/Broadcasting -- 2.8%
8,000 AMFM Inc.*.............................. 626,000
40,000 News Corp Ltd. ADR++.................... 1,337,500
-----------
1,963,500
-----------
Printing/Publishing -- 0.7%
21,000 Donnelley (R.R.) & Sons Co.............. 521,063
-----------
Retail -- 3.3%
29,500 CVS Corp................................ 1,178,156
35,332 May Department Stores Co................ 1,139,457
-----------
2,317,613
-----------
Technology -- 6.9%
53,000 Compaq Computer Corp.................... 1,434,312
49,000 Computer Associates International, Inc.. 3,426,938
-----------
4,861,250
-----------
Telecommunications -- 10.1%
27,000 Bell Atlantic Corp...................... 1,662,188
13,500 Ericsson L M Tel Co.++.................. 886,781
37,500 MCI Worldcom Inc........................ 1,989,844
38,000 Sprint Corp. (FON Group)*............... 2,557,875
-----------
7,096,688
-----------
Transportation -- 5.5%
31,600 AMR Corp.*.............................. 2,117,200
35,000 Burlington Northern Santa Fe............ 848,750
41,000 Canadian Pacific Ltd*................... 884,063
-----------
3,850,013
-----------
Waste Disposal -- 2.1%
85,000 Waste Management, Inc................... 1,460,938
-----------
Total Common Stock (cost - $63,726,541). 66,493,456
-----------
</TABLE>
5
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(concluded) - Unaudited
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
- ------- -----
<S> <C> <C>
U.S. GOVERNMENT AGENCY -- 5.2%
$3,655 Federal Home Loan Bank Discount Notes,
1.50%, 1/3/00 (cost - $3,654,695)...... $ 3,654,695
-----------
Total Investments (cost - $67,381,236).. 99.5% 70,148,151
Other assets less liabilities........... 0.5 364,062
----- -----------
Net Assets.............................. 100.0% $70,512,213
===== ===========
</TABLE>
- ----------------------
* Non-income producing security
ADR--American Depositary Receipt
++ Preferred Stock
See accompanying notes to financial statements.
6
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 - Unaudited
<TABLE>
<S> <C>
Assets
Investments, at value (cost - $67,381,236)........... $70,148,151
Cash................................................. 5,189
Receivable for investments sold...................... 203,877
Receivable for shares of beneficial interest sold.... 173,613
Dividends receivable................................. 42,376
Prepaid expenses..................................... 369
-----------
Total Assets........................................ 70,573,575
-----------
Liabilities
Payable for shares of beneficial interest redeemed... 26,117
Investment advisory fee payable...................... 8,132
Accrued expenses..................................... 27,113
-----------
Total Liabilities................................... 61,362
-----------
Net Assets.......................................... $70,512,213
===========
Compostion of Net Assets
Par value ($.01 per share)........................... $ 18,774
Paid-in-capital in excess of par..................... 60,294,853
Accumulated net investment income.................... 533,159
Accumulated net realized gain on investments......... 6,898,512
Net unrealized appreciation on investments........... 2,766,915
-----------
Net Assets.......................................... $70,512,213
===========
Shares outstanding................................... 1,877,417
----------
Net asset value per share............................ $37.56
======
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1999 - Unaudited
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $8,659).............. $ 786,022
Interest............................................................ 309,796
-----------
Total investment income........................................... 1,095,818
-----------
Expenses:
Investment advisory fees............................................ 498,512
Custodian fees...................................................... 23,016
Audit fees.......................................................... 15,986
Trustees' fees and expenses......................................... 11,121
Transfer agent fees................................................. 7,141
Reports to shareholders............................................. 4,853
Legal fees.......................................................... 925
Miscellaneous....................................................... 2,819
-----------
Total expenses.................................................... 564,373
Less: expense offset.............................................. (1,716)
-----------
Net expenses..................................................... 562,657
-----------
Net investment income............................................ 533,161
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments.................................... 6,898,512
Net change in unrealized appreciation/depreciation on investments... (6,428,576)
-----------
Net realized and unrealized gain on investments................... 469,936
-----------
Net increase in net assets resulting from operations................. $ 1,003,097
===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1999 (Unaudited) 1998
---- ----
<S> <C> <C>
Operations:
Net investment income....................................................... $ 533,161 $ 496,362
Net realized gain on investments............................................ 6,898,512 2,269,575
Net change in unrealized appreciation/depreciation on investments........... (6,428,576) 1,277,757
------------ -----------
Net increase in net assets resulting from operations....................... 1,003,097 4,043,694
------------ -----------
Dividends and Distributions to Shareholders from:
Net investment income....................................................... (496,364) (311,417)
Net realized gains.......................................................... (2,260,410) (1,344,997)
------------ -----------
Total dividends and distributions to shareholders.......................... (2,756,774) (1,656,414)
------------ -----------
Share Transactions:
Net proceeds from the sale of shares........................................ 34,572,395 25,006,798
Reinvestment of dividends and distributions................................. 2,756,773 1,656,414
Cost of shares redeemed..................................................... (13,773,989) (9,159,759)
------------ -----------
Net increase in net assets from share transactions......................... 23,555,179 17,503,453
------------ -----------
Total increase in net assets............................................. 21,801,502 19,890,733
Net Assets:
Beginning of year........................................................... 48,710,711 28,819,978
------------ -----------
End of year (including undistributed net investment income of $533,159 and
$496,362, respectively).................................................... $ 70,512,213 $48,710,711
============ ===========
Shares Issued and Redeemed:
Issued...................................................................... 902,799 673,182
Issued in reinvestment of dividends and distributions....................... 77,459 44,976
Redeemed.................................................................... (361,604) (248,628)
------------ -----------
Net increase............................................................... 618,654 469,530
============ ===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year
(1999 Unaudited):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $38.70 $36.52 $30.07 $25.05 $18.12
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income................................ 0.25 0.39 0.39 0.21 0.31
Net realized and unrealized gain on investments...... 0.62 3.84 7.34 5.52 6.71
------ ------ ------ ------ ------
Total income from investment operations............. 0.87 4.23 7.73 5.73 7.02
------ ------ ------ ------ ------
Dividends and Distributions to Shareholders from:
Net investment income................................. (0.36) (0.39) (0.28) (0.24) (0.09)
Net realized gains.................................... (1.65) (1.66) (1.00) (0.47) --
------ ------ ------ ------ ------
Total dividends and distributions to shareholders... (2.01) (2.05) (1.28) (0.71) (0.09)
------ ------ ------ ------ ------
Net asset value, end of year.......................... $37.56 $38.70 $36.52 $30.07 $25.05
====== ====== ====== ====== ======
Total Return (1) 2.54% 11.9% 26.6% 23.4% 38.9%
====== ====== ====== ===== =====
Ratios/Supplemental data:
Net assets, end of year (000's)....................... $70,512 $48,711 $28,820 $19,843 $9,036
Ratio of expenses to average net assets (2)........... 0.91% 0.94% 0.99% 0.93%(3) 0.72%(3)
Ratio of net investment income to average net assets.. 0.86% 1.36% 1.25% 1.29%(3) 1.74%(3)
Portfolio Turnover.................................... 84% 29% 32% 36% 31%
</TABLE>
- ----------------
(1) Assumes reinvestment of all dividends and distributions.
(2) For fiscal years ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank (See 1G in Notes to
Financial Statements).
(3) During the fiscal years indicated above, the Adviser waived a portion or
all of its fees and assumed a portion of the Portfolio's expenses. If such
waivers and assumptions had not been in effect, the ratios of 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, and 1.26% and 1.20%, respectively, for the year ended
December 31, 1995.
10
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 - Unaudited
(1) Organization and Significant Accounting Policies
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio (the "Portfolio"), the Small Cap Portfolio, the Global
Equity Portfolio, the Managed Portfolio, the U.S. Government Income Portfolio
and the 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 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, 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. 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 and trader-reviewed "matrix"
prices. Short-term debt securities having a remaining maturity of sixty days or
less are valued at amortized cost or amortized value, which approximates market
value. Any securities or other assets for which market quotations are not
readily available are valued at fair value as determined in good faith by the
Board of Trustees. The ability of issuers of debt instruments to meet their
obligations may be affected by economic developments in a specific industry or
region.
(B) Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders; accordingly, no
federal income tax provision is required.
(C) Investment Transactions and Other Income
Investment transactions are accounted for on the trade date. In determining the
gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) Dividends and Distributions
Dividends and distributions to shareholders from net investment income and net
realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on the
ex-dividend date. The amount of dividends and distributions 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
11
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(continued) - Unaudited
(1) Organization and Significant Accounting Policies (concluded)
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 as a tax return
of capital.
(E) Allocation of Expenses
Expenses specifically identifiable to a particular portfolio are borne by that
portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
(G) Expense Offset
The portfolio benefits from an expense offset arrangement with its custodian
bank whereby uninvested cash balances earn credits which reduce monthly
custodian fees. Had these cash balances been invested in income producing
securities, they would have generated income for the Portfolio.
(H) Trustees' Retirement Plan
The trustees have adopted a Retirement Plan (the "Plan") effective January 1,
1999. The Plan 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. For the year ended December 31, 1999, the
Portfolio accrued $4,381 in connection with the Plan.
(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 any expense offset) on an annual basis.
(3) Investments in Securities
For federal income tax purposes, the cost of securities owned at December 31,
1999 was $67,381,236. Accordingly, net unrealized depreciation of investments
of $2,766,915 was comprised of gross appreciation of 7,851,247 for those
investments having an excess of value over cost and gross depreciation of
$5,084,332 for those investments having an excess of cost over value.
For the year ended December 31, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $71,597,222 and
$46,834,007, respectively.
12
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(concluded) - Unaudited
(4) Acquisition of Investment Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subsidiary, PIMCO Advisors L.P. ("PIMCO Advisors"), and Allianz AG ("Allianz")
announced that they have reached a definitive agreement for Allianz, a German
insurance company , to acquire majority ownership of PIMCO Advisors, including
all of the interests held by PAH (the "Allianz Transaction"). For the Portfolio,
the change of control as a result of the consummation of the Allianz Transaction
(expected to close by the end of the first quarter of 2000) will result in the
automatic termination of the current investment advisory agreement with OpCap
Advisors. The trustees have approved a new agreement with OpCap Advisors to
become effective upon consummation of the Allianz Transaction. The new agreement
will be submitted for approval by the stockholders of the Portfolio.
13
<PAGE>
OCC ACCUMULATION TRUST
MANAGED BY
[OPCAP ADVISORS LOGO]
1999 Annual Report - Unaudited
The stock market in 1999 was characterized by two contradictory trends: the
rapid price escalation of many technology stocks, especially those associated
with e-commerce and the Internet, and a widespread malaise among stocks in most
other industry sectors. The Standard & Poor's 500 Index (the "S&P 500") rose
21.0% during the year, returning more than 20% for a record fifth consecutive
year. However, this performance distorted the overall direction of the market.
Without its technology stock component, the S&P 500 would have been down 1% in
1999. In fact, approximately 60% of the stocks on the New York Stock Exchange
declined in price during the year.
The year was especially challenging for value investors such as ourselves.
Stocks of many quality companies with strong competitive positions, high cash
flow and favorable earnings prospects--the types of stocks in which we invest--
were out of favor, trailing the market indexes by a wide margin. As a result,
our investment returns generally fell short of our benchmarks in 1999.
We have always been thoughtful in our value style to give consideration to
companies across the breadth of the market, including technology companies. In
fact, we did well with several technology investments during the past year,
including Computer Associates and Motorola in the United States and Ericsson and
Alcatel in Europe. However, in the current ebullient market for technology
stocks, it has become increasingly difficult to find value in the sector.
Regardless of whether the current technology stock craze turns out to be a
bubble that bursts, the technology industry is growing rapidly and creating
enormous economic wealth. Our challenge as value investors, therefore, is to
identify solid companies that stand to benefit from this growth.
At OpCap Advisors, we continue to invest in our people and our operation to
ensure we have the necessary resources to meet this challenge. Our firm has
moved aggressively to hire additional investment personnel and has made
important reallocations of people and resources to best apply investment skills
not only to technology stocks, but to other industry sectors as well. We have
established "sector" groups, involving the integration of our domestic and
international analysts, to ensure timely and complete coverage of investment
opportunities wherever they may exist.
By remaining disciplined in our value style, and taking the necessary actions to
keep pace with an ever-evolving stock market, we are focused on delivering
excellent long-term investment results without taking large risks. We believe
many of the stocks we own are significantly undervalued, providing opportunities
for substantial profits as undervalued securities of financially solid, growing
companies return to favor.
As the new year begins, the U.S. economy remains strong, perhaps too strong, and
there are indications of excessive optimism in the stock market. Inflation has
been kept low for the past several years by an internationally competitive
environment, major improvements in technology, corporate mergers and
restructurings, and low inflation expectations. Recently, however, some of these
factors have reversed. Commodity prices have rebounded strongly, while energy
and import prices are on the rise. These factors suggest to us that inflationary
pressures could increase somewhat in the months ahead and that the Federal
Reserve is likely to raise interest rates further, on top of the three rate
increases already implemented since June 1999. We believe these conditions will
favor our value style of investing, which emphasizes companies that can generate
a high level of cash flow throughout the economic cycle.
1
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO - Unaudited
The Global Equity Portfolio delivered a total return of 26.5% in 1999, exceeding
the 24.9% return of its benchmark, the Morgan Stanley Capital International
World Index (the "World Index") in U.S. dollars. We are pleased with these
results, which primarily reflected favorable stock selection in Europe and
Japan. The Portfolio's return of 11.6% during the second half of the year
compared with a return of 15.1% for the World Index.
The Portfolio invests in undervalued companies with what we consider to be
superior business characteristics, including strong competitive positions, high
cash flow and positive earnings outlooks. The objective of our value-based
approach is to capitalize on investment opportunities worldwide and deliver
excellent long-term investment results while controlling risk.
For the three years ended December 31, 1999, the Portfolio delivered an average
annual total return of 17.8% compared with 21.6% for the World Index. From its
inception on March 1, 1995 through December 31, 1999, the Portfolio's average
annual return was 18.1% while the annual return on the World Index was 20.5%.
Returns for the Portfolio take into account expenses incurred by the Portfolio,
but not separate account charges imposed by the insurance company.
At December 31, 1999, the Portfolio's top six country positions were: the United
States, representing 36.2% of the Portfolio's net assets; Japan, 11.6% of net
assets; the United Kingdom, 10.9% of net assets; France, 6.3% of net assets;
Sweden, 5.2% of net assets; and Germany, 5.0% of net assets.
During the year, many global stock markets rose sharply, reflecting a high level
of investor optimism about the growth of the Internet, particularly as it may
affect data traffic over fixed and mobile phone lines. This strength was visible
not only in the United States stock market, but also in the European and Asian
markets, where technology issues led stock prices higher. The early success of
mobile Internet services in Japan and a hostile bid for Mannesmann, Germany's
largest mobile operator, propelled many stocks with direct and peripheral
exposure to the convergence of Internet data transfer and telephony. In Europe,
the trend toward consolidation is sweeping across key industries such as
telecommunications, finance, and healthcare, resulting in higher share prices.
European holdings of the Portfolio that benefited from these developments
included Swedish mobile equipment maker Ericsson, which gained 110% during the
fourth quarter alone in the wake of a strong third-quarter earnings report and
growing order books. French fixed line hardware supplier Alcatel increased 66%
during the fourth quarter. The Spanish telephone company, Telefonica, which owns
a large Internet portal and the country's main mobile phone operation, also rose
strongly, as did German conglomerate Siemens. The latter company is in the
process of restructuring its total portfolio of businesses, including a
promising position in telecommunications equipment. EMI Music enjoyed a strong
performance, reflecting investors' enthusiasm for the company's investment in
Internet music sites.
On the other hand, many of our European holdings in traditional businesses were
flat or even lower in price during the year. U.K. remote-retailer Great
Universal Stores fell on fears concerning its catalog business despite the
company's strong presence in consumer credit and in marketing techniques ideally
suited to e-commerce. Other high-quality traditional businesses that languished
included Diageo (global food and spirits company), GUS (large discount retail
franchise) and XL Capital (insurance and reinsurance).
We enjoyed an outstanding year in Japan, where our holdings more than doubled in
value by the end of the first quarter of 1999 and kept right on rising. As
prices continued to increase, we began to reduce our Japanese investments
because of concerns about high valuations. While we continue to search for new
Japanese stocks, it is increasingly difficult to identify solid businesses that
trade at discounts to their intrinsic value. We did add cosmetics maker Shiseido
to our Japanese holdings after several meetings with management convinced us
that the company, which had fared poorly in recent years, now has a credible
program for improving profit margins and returns on investment.
In the U.S., the Portfolio's investments consist of a core group of quality
companies that we believe to be undervalued, such as Wells Fargo (banking),
Citigroup (banking and other financial services) and Computer
2
<PAGE>
Associates International (computer software). Our sizable holdings of financial
stocks in the U.S. detracted from performance. Even though the financial
companies we own continue to increase their earnings and create shareholder
value, share prices of many financial corporations were down in 1999 due to
investor concerns regarding the impact of higher interest rates. In the latter
part of the year, we repositioned our financial holdings, taking money from
superlative performers such as Citigroup and using it to purchase stocks such as
Freddie Mac whose share price declined in 1999 despite continued strong earnings
growth.
During the fourth quarter, we established a new position in Anadarko Petroleum,
an oil and gas exploration and production company based in the U.S. Anadarko is
well managed and, in our view, the share price is inexpensive in relation to the
company's business prospects
Our emerging market investments include small positions in India and Brazil. Our
main investments in Brazil are Telebras, a holding company with controlling
stakes in most of the fixed and wireless telephone companies in that nation, and
Petrobras, a national oil exportation and production monopoly, both of which
provided solid investment returns in the second half of 1999.
In the second half of the year, we began to take a somewhat more defensive
investment posture due to concerns about valuations and the impact of rising
interest rates. At December 31, 1999, the Portfolio's net assets were allocated
57.1% to the common stocks of companies based outside the United States, 36.2%
to the common stocks of companies headquartered within the U.S., and 6.7% to
short-term investments. This reflected a reduction in our U.S. holdings during
the fourth quarter and an increase in short-term investments.
The Portfolio's five largest non-U.S. equity holdings at December 31, 1999 were
XL Capital, a strongly capitalized specialty insurance company headquartered in
Bermuda, representing 2.6% of the Portfolio's net assets; News Corp., an
Australian-based global media and entertainment company, 2.3% of net assets;
Sony, the well-known Japanese electronics and consumer products company, 1.9% of
net assets; Teva Pharmaceutical, an Israeli pharmaceutical company, 1.9% of net
assets; and Skandinaviska Enskilda Banken, a leading Swedish bank, 1.7% of net
assets.
The five largest U.S. equity holdings were Wells Fargo, a financial conglomerate
comprising one of the larger banks in the Midwest and West, together with
national mortgage and consumer finance companies, representing 3.9% of the
Portfolio's net assets; Citigroup, a leading global banking, insurance and other
financial services company, 3.7% of net assets; Freddie Mac, the second largest
insurer of home mortgages in the U.S., 3.6% of net assets; Computer Associates
International, which designs and markets computer software, 3.2% of net assets;
and McDonald's, a premier fast-food company with growing global markets, 2.3% of
net assets.
Major industry positions were: financial services, representing 12.9% of the
Portfolio's net assets at December 31, 1999; banking, 10.5% of net assets;
telecommunications, 8.4% of net assets; technology, 7.4% of net assets; and
consumer products, 6.8% of net assets.
3
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
COMMON STOCK -- 93.5%
AUSTRALIA -- 2.3%
Media/Broadcasting -- 2.3%
30,000 News Corp. Ltd.+.................. $1,003,125
----------
AUSTRIA -- 1.0%
Banking -- 1.0%
7,700 Bank Austria AG................... 434,369
----------
BERMUDA -- 2.6%
Insurance -- 2.6%
21,897 XL Capital Ltd.................... 1,135,907
----------
BRAZIL -- 1.2%
Paper Products -- 0.0%
210,000 Empresa Nacional de Celulosas SA+. 302
----------
Telecommunications -- 1.2%
6,100,000 Telecomunicacoes Brasileiras SA... 520,011
----------
CANADA -- 0.8%
Transportation -- 0.8%
17,000 Canadian Pacific Ltd.............. 365,674
----------
DENMARK -- 1.1%
Financial Services -- 1.1%
6,500 Unidanmark A/S.................... 457,443
----------
FINLAND -- 0.8%
Paper Products -- 0.8%
20,100 Stora Enso Oyj.................... 350,488
----------
FRANCE -- 6.3%
Banking -- 1.0%
4,500 Banque Nationale de Paris......... 415,230
----------
Electronics -- 1.1%
3,150 Alcatel........................... 493,803
----------
Financial Services -- 1.1%
2,000 Societe Generale.................. 465,396
----------
Food & Beverages -- 1.6%
2,850 Groupe Danone..................... 671,801
----------
Insurance -- 0.4%
4,300 Scor SA........................... 189,724
----------
Office Equipment -- 1.1%
10,900 Societe BIC SA.................... 496,081
----------
GERMANY -- 5.0%
Banking -- 1.4%
9,150 Bayerische HypoVereinsbank AG..... 624,929
----------
Manufacturing -- 1.5%
5,200 Siemens AG........................ 661,587
----------
Power/Utility -- 1.4%
12,200 Veba Aktien AG.................... 592,976
----------
</TABLE>
4
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(continued) - Unaudited
<TABLE>
<CAPTION>
Shares Value
------ ------------
<C> <S> <C>
COMMON STOCK (continued)
GERMANY (continued)
Retail -- 0.7%
6,000 Hornbach Holding AG+.................... $ 290,117
----------
GREECE -- 1.0%
Telecommunications -- 1.0%
35,100 Panafon Hellenic Telecom SA............. 444,015
----------
HONG KONG -- 0.5%
Industrial Materials -- 0.5%
85,000 Yue Yuen Industrial Holdings............ 202,290
----------
INDIA -- 1.3%
Banking -- 0.4%
15,000 State Bank of India GDR Reg. S.......... 178,500
----------
Telecommunications -- 0.9%
34,000 Mahanagar Telephone Nigam Ltd........... 374,000
----------
ISRAEL -- 1.9%
Drugs & Medical Products -- 1.9%
11,400 Teva Pharmaceutical Industries Ltd. ADR. 817,238
----------
ITALY -- 1.2%
Telecommunications -- 1.2%
82,300 Telecom Italia SpA...................... 501,574
----------
JAPAN -- 11.6%
Consumer Products -- 5.7%
11,000 CANON, Inc.............................. 437,115
20,000 Kao Corp................................ 570,617
44,000 Shiseido Co............................. 641,675
2,800 SONY Corp............................... 830,381
----------
2,479,788
----------
Electronics -- 1.2%
11,000 Fujitsu Ltd............................. 501,713
----------
Financial Services -- 2.4%
9,600 Nichiei Co., Ltd........................ 208,594
47,300 Nikko Securities Co., Ltd............... 598,599
650 SHOHKOH FUND & Co., Ltd................. 257,341
----------
1,064,534
----------
Food & Beverages -- 0.8%
19,000 Mikuni Coca-Cola Bottling Co............ 332,877
----------
Housing -- 0.4%
2,900 FamilyMart Co., Ltd..................... 193,012
----------
Technology -- 1.1%
29,900 Canon Sales Co., Inc.................... 462,386
----------
</TABLE>
5
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(continued) - Unaudited
<TABLE>
<CAPTION>
Shares Value
- -------- ---------
<C> <S> <C>
COMMON STOCK (continued)
SPAIN -- 2.6%
Banking -- 0.9%
6,000 Banco Popular Espanol SA...................... $391,355
--------
Energy -- 0.9%
30,000 Iberdrola SA.................................. 415,834
--------
Telecommunications -- 0.8%
13,260 Telefonica SA*................................ 331,265
--------
SWEDEN -- 5.2%
Banking -- 1.9%
72,600 Skandinaviska Enskilda Banken................. 733,764
10,400 Skandinaviska Enskilda Banken (New Series A)*. 103,890
--------
837,654
--------
Drugs & Medical Products -- 1.1%
10,200 Pharmacia & UpJohn, Inc....................... 462,710
--------
Electronics -- 0.9%
16,000 Electrolux AB................................. 402,398
--------
Hotels -- 0.4%
18,000 Scandic Hotels AB............................. 167,117
--------
Telecommunications -- 0.9%
6,000 Telefonaktiebolaget LM Ericsson............... 385,709
--------
UNITED KINGDOM -- 10.9%
Consumer Products -- 1.1%
51,200 Reckitt Benckiser plc......................... 484,642
--------
Drugs & Medical Products -- 1.1%
145,000 Smith & Nephew plc............................ 487,175
112 SmithKline Beecham plc........................ 1,420
--------
488,595
--------
Electronics -- 1.0%
80,000 Invensys plc.................................. 422,963
--------
Energy -- 0.9%
60,000 Enterprise Oil................................ 407,056
--------
Entertainment -- 1.6%
69,000 EMI Group plc................................. 679,880
--------
Food Services -- 1.2%
63,700 Diageo plc.................................... 508,299
--------
Industrial Materials -- 1.2%
117,000 Williams plc.................................. 532,952
--------
Printing/Publishing -- 1.2%
72,700 Reed International plc........................ 546,060
--------
Retail -- 1.6%
116,900 Great Universal Stores plc.................... 679,783
--------
</TABLE>
6
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(continued) - Unaudited
<TABLE>
<CAPTION>
Shares Value
- ---------- ----------
<C> <S> <C>
COMMON STOCK (concluded)
UNITED STATES -- 36.2%
Aerospace/Defense -- 2.1%
22,150 Boeing Co............................. $ 920,609
-----------
Banking -- 3.9%
41,400 Wells Fargo & Co...................... 1,674,113
-----------
Chemicals -- 2.1%
14,000 du Pont (E.I.) de Nemours & Co........ 922,250
-----------
Conglomerates -- 1.7%
7,700 Minnesota Mining & Manufacturing Co... 753,638
-----------
Drugs & Medical Products -- 1.0%
10,800 American Home Products Corp........... 425,925
-----------
Energy -- 0.1%
1,200 Anadarko Petroleum Corp............... 40,950
-----------
Financial Services -- 8.3%
29,000 Citigroup, Inc........................ 1,611,313
33,000 Federal Home Loan Mortgage Corp....... 1,553,062
12,000 Household International............... 447,000
-----------
3,611,375
-----------
Food Services -- 2.3%
25,000 McDonald's Corp....................... 1,007,813
-----------
Machinery/Engineering -- 1.6%
14,600 Caterpillar, Inc...................... 687,112
-----------
Manufacturing -- 1.3%
6,900 Alcoa, Inc............................ 572,700
-----------
Media/Broadcasting -- 1.4%
7,700 AMFM, Inc............................. 602,525
-----------
Technology -- 6.3%
31,300 Compaq Computer Corp.................. 847,056
20,000 Computer Associates International, Inc 1,398,750
6,000 Intel Corp............................ 493,875
-----------
2,739,681
-----------
Telecommunications -- 2.5%
7,400 Bell Atlantic Corp.................... 455,562
12,000 MCI Worldcom. Inc.*................... 636,750
-----------
1,092,312
-----------
Transportation -- 1.6%
8,800 UAL Corp.*............................ 682,550
-----------
Total Common Stock(cost - $35,227,722) 40,598,715
-----------
</TABLE>
7
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(concluded) - unaudited
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
- --------- ------
<S> <C> <C>
U.S. GOVERNMENT AGENCY -- 6.8%
$2,925 Federal Home Loan Bank Discount Notes,
1.50%, 1/3/00 (cost - $2,924,756)................... $ 2,924,756
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments (cost - $38,152,478).. 100.3% 43,523,471
Liabilities in excess of other assets... (0.3) (111,912)
----- -----------
Net Assets.............................. 100.0% $43,411,559
===== ===========
</TABLE>
- ---------------------
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
* Non-income producing security
+ Preferred Stock
See accompanying notes to financial statements.
8
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost - $38,152,478)............................................... $43,523,471
Cash..................................................................................... 68,839
Receivable for shares of beneficial interest sold........................................ 39,893
Dividends receivable..................................................................... 36,039
Prepaid expenses......................................................................... 367
-----------
Total Assets............................................................................ 43,668,609
-----------
Liabilities:
Net unrealized depreciation on foreign currency contracts................................ 776
Payable for investments purchased........................................................ 172,132
Payable for shares of beneficial interest redeemed....................................... 40,121
Investment advisory fee payable.......................................................... 5,142
Accrued expenses......................................................................... 38,879
-----------
Total Liabilities....................................................................... 257,050
-----------
Net Assets.............................................................................. $43,411,559
===========
Composition of Net Assets:
Par value ($.01 per share)............................................................... $ 26,210
Paid-in-capital in excess of par......................................................... 36,410,702
Dividends in excess of net investment income............................................. (601,733)
Accumulated net realized gain on investments............................................. 2,206,163
Net unrealized appreciation on investments and other assets and liabilities denominated
in foreign currency..................................................................... 5,370,217
-----------
Net Assets.............................................................................. $43,411,559
===========
Shares outstanding....................................................................... 2,620,954
------------
Net asset value per share................................................................ $16.56
======
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $48,142).......................................... $ 541,052
Interest......................................................................................... 56,633
----------
Total investment income........................................................................ 597,685
----------
Expenses:
Investment advisory fees......................................................................... 302,528
Custodian fees................................................................................... 75,593
Audit fees....................................................................................... 18,172
Trustees' fees and expenses...................................................................... 7,625
Transfer agent fees.............................................................................. 5,505
Reports to shareholders.......................................................................... 3,434
Legal fees....................................................................................... 895
Miscellaneous.................................................................................... 2,801
----------
Total expenses................................................................................. 416,553
Less: expense offset........................................................................... (687)
----------
Net expenses.................................................................................. 415,866
----------
Net investment income......................................................................... 181,819
----------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain on investments................................................................. 8,303,445
Net realized loss on foreign currency transactions............................................... (92,098)
Net change in unrealized appreciation/depreciation on investments and other assets
and liabilities denominated in foreign currency................................................ 648,000
----------
Net realized and unrealized gain on investments and other assets and liabilities denominated
in foreign currency.......................................................................... 8,859,347
----------
Net increase in net assets resulting from operations.............................................. $9,041,166
==========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1999 (Unaudited) 1998
---- ----
<S> <C> <C>
Operations:
Net investment income.................................................. $ 181,819 $ 242,532
Net realized gain on investments....................................... 8,303,445 1,274,387
Net realized gain (loss) on foreign currency transactions.............. (92,098) 23,150
Net change in unrealized appreciation/depreciation on investments and
other assets and liabilities denominated in foreign currency.......... 648,000 1,899,363
------------ -----------
Net increase in net assets resulting from operations................ 9,041,166 3,439,432
------------ -----------
Dividends and Distributions to Shareholders from:
Net investment income.................................................. (569,505) (382,416)
Net realized gains..................................................... (6,011,036) (1,316,653)
------------ -----------
Total dividends and distributions to shareholders................... (6,580,541) (1,699,069)
------------ -----------
Share Transactions:
Net proceeds from the sales of shares.................................. 15,608,376 11,034,344
Reinvestment of dividends and distributions............................ 6,580,541 1,699,069
Cost of shares redeemed................................................ (16,015,175) (5,570,212)
------------ -----------
Net increase in net assets from share transactions.................. 6,173,742 7,163,201
------------ -----------
Total increase in net assets........................................ 8,634,367 8,903,564
Net Assets:
Beginning of year...................................................... 34,777,192 25,873,628
------------ -----------
End of year............................................................ $ 43,411,559 $34,777,192
============ ===========
Shares Issued and Redeemed:
Issued................................................................. 889,280 692,242
Issued in reinvestment of dividends and distributions.................. 397,827 110,115
Redeemed............................................................... (920,505) (354,531)
------------ -----------
Net increase........................................................ 366,602 447,826
============ ===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each period
(1999 Unaudited):
<TABLE>
<CAPTION>
Year ended December 31, For the Period
------------------------- March 1, 1995 (1) to
1999 1998 1997 1996 December 31, 1995
------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $15.43 $14.32 $13.23 $11.61 $10.00
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income........................ 0.12 0.12 0.06 0.04 0.05
Net realized and unrealized gain on
investments................................. 3.97 1.78 1.79 1.70 1.83
------ ------ ------ ------ ------
Total income from investment
operations................................. 4.09 1.90 1.85 1.74 1.88
------ ------ ------ ------ ------
Dividends and Distributions to Shareholders:
From net investment income................... (0.26) (0.18) (0.04) (0.05) (0.03)
In excess of net investment income........... -- -- (0.03) -- --
From net realized gains...................... (2.70) (0.61) (0.69) (0.07) (0.24)
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders............................... (2.96) (0.79) (0.76) (0.12) (0.27)
------ ------ ------ ------ ------
Net asset value, end of period............... $16.56 $15.43 $14.32 $13.23 $11.61
====== ====== ====== ====== ======
Total Return (2)............................. 26.5% 13.3% 14.0% 15.0% 18.9%
===== ====== ===== ===== =====
Ratios/Supplemental data:
Net assets, end of period (000's).............. $43,412 $34,777 $25,874 $16,972 $ 2,891
Ratio of expenses to average net assets (3).... 1.10% 1.13% 1.19%(4) 1.42%(4) 1.25%(4)(5)
Ratio of net investment income to average net
assets........................................ 0.48% 0.79% 0.45%(4) 0.81%(4) 1.02%(4)(5)
Portfolio Turnover............................. 83% 55% 53% 40% 67%
</TABLE>
- -------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for
a period of less than one year is not annualized.
(3) Inclusive of expenses offset by earnings credits from custodian bank (See 1H
in Notes to Financial Statements).
(4) During the fiscal periods indicated above, the Adviser waived a portion or
all of its fees and assumed a portion of the Portfolio's 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 income (loss) 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.
(5) Annualized
12
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 - Unaudited
(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. 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 continue 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 investments and other assets
and liabilities denominated in foreign currency are translated at the
prevailing exchange rate on the valuation dates (2) purchases and sales of
investments, income and expenses are translated at the rate of exchange
prevailing on the respective dates of such transactions. The resulting net
foreign currency gain or loss is included in the Statement of Operations.
13
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(continued) - Unaudited
(1) Organization and Significant Accounting Policies--(continued)
(D) Foreign Currency Translation (concluded)
The Portfolio does not generally isolate that portion of the results of
operations arising as a result of changes in the foreign currency exchanges
rates from fluctuations arising from changes in the market prices of
securities. Accordingly, such foreign currency gain (loss) is included in net
realized and unrealized gain (loss) on investments. However, the Portfolio does
isolate the effect of fluctuations in foreign currency exchange rates when
determining the gain or loss upon the sale or maturity of foreign currency
denominated debt obligations pursuant to U.S. federal income tax regulations;
such amount is categorized as foreign currency gain or loss for both financial
reporting and income tax reporting purposes.
Net foreign currency gain (loss) from valuing foreign currency denominated
assets and liabilities at period end exchange rates is reflected as a component
of net unrealized appreciation of investments and other assets and liabilities
denominated in foreign currency. Net realized foreign currency gain (loss) is
treated as ordinary income (loss) for income tax reporting purposes.
(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 as a tax return of capital.
(F) Allocation of Expenses
Expenses specifically identifiable to a particular portfolio are borne by that
portfolio. Other expenses are allocated to each portfolio 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) Expense Offset
The Portfolio benefits from an expense offset arrangement with its custodian
bank whereby uninvested cash balances earn credits which reduce monthly
custodian fees. Had these cash balances been invested in income producing
securities, they would have generated income for the Portfolio.
(I) Trustees' Retirement Plan
The trustees have adopted a Retirement Plan (the "Plan") effective January 1,
1999. The Plan 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
14
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(concluded) - Unaudited
(1) Organization and Significant Accounting Policies--(continued)
(I) Trustees' Retirement Plan (continued)
lessor period as may be approved by the board) to become eligible to receive
benefits. For the year ended December 31, 1999, the Portfolio accrued $3,139 in
connection with the Plan.
(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 any expense offset) on an annual basis.
(3) Investments in Securities
For federal income tax purposes the cost of securities owned at December 31,
1999 was $38,152,478. Accordingly, net unrealized appreciation of investments
of $5,370,217 was comprised of gross appreciation of $7,638,839 for those
investments having an excess of value over cost and gross depreciation of
$2,268,622 for those investments having an excess of cost over value.
For the year ended December 31, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $30,272,747 and
$31,338,748, respectively.
(4) Acquisition of Investment Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subisidiary, PIMCO Advisors L.P. ("PIMCO Ad" and Allianz AG ("Allianz")
announced that they have reached a definitive agreement for Allianz, a German
insurance company acquire majority ownership of PIMCO Advisors, including all
of the interests held by PAH (the "Allianz Transaction"). For the Portfolio,
the change of control as a result of the consummation of the Allianz
Transaction (expected to close by the end of the first quarter of 2000) will
result in the automatic termination of the current investment advisory
agreement with OpCap Advisors. The trustees have approved a new agreement with
OpCap Advisors to become effective upon consummation of the Allianz
Transaction. The new agreement will be submitted for approval by the
stockholders of the Portfolio.
15
<PAGE>
OCC ACCUMULATION TRUST
MANAGED BY
[OPCAP ADVISORS LOGO]
1999 Annual Report - Unaudited
The stock market in 1999 was characterized by two contradictory trends: the
rapid price escalation of many technology stocks, especially those associated
with e-commerce and the Internet, and a widespread malaise among stocks in most
other industry sectors. The Standard & Poor's 500 Index (the "S&P 500") rose
21.0% during the year, returning more than 20% for a record fifth consecutive
year. However, this performance distorted the overall direction of the market.
Without its technology stock component, the S&P 500 would have been down 1% in
1999. In fact, approximately 60% of the stocks on the New York Stock Exchange
declined in price during the year.
The year was especially challenging for value investors such as ourselves.
Stocks of many quality companies with strong competitive positions, high cash
flow and favorable earnings prospects--the types of stocks in which we invest--
were out of favor, trailing the market indexes by a wide margin. As a result,
our investment returns generally fell short of our benchmarks in 1999.
We have always been thoughtful in our value style to give consideration to
companies across the breadth of the market, including technology companies. In
fact, we did well with several technology investments during the past year,
including Computer Associates and Motorola in the United States and Ericsson and
Alcatel in Europe. However, in the current ebullient market for technology
stocks, it has become increasingly difficult to find value in the sector.
Regardless of whether the current technology stock craze turns out to be a
bubble that bursts, the technology industry is growing rapidly and creating
enormous economic wealth. Our challenge as value investors, therefore, is to
identify solid companies that stand to benefit from this growth.
At OpCap Advisors, we continue to invest in our people and our operation to
ensure we have the necessary resources to meet this challenge. Our firm has
moved aggressively to hire additional investment personnel and has made
important reallocations of people and resources to best apply investment skills
not only to technology stocks, but to other industry sectors as well. We have
established "sector" groups, involving the integration of our domestic and
international analysts, to ensure timely and complete coverage of investment
opportunities wherever they may exist.
By remaining disciplined in our value style, and taking the necessary actions to
keep pace with an ever-evolving stock market, we are focused on delivering
excellent long-term investment results without taking large risks. We believe
many of the stocks we own are significantly undervalued, providing opportunities
for substantial profits as undervalued securities of financially solid, growing
companies return to favor.
As the new year begins, the U.S. economy remains strong, perhaps too strong, and
there are indications of excessive optimism in the stock market. Inflation has
been kept low for the past several years by an internationally competitive
environment, major improvements in technology, corporate mergers and
restructurings, and low inflation expectations. Recently, however, some of these
factors have reversed. Commodity prices have rebounded strongly, while energy
and import prices are on the rise. These factors suggest to us that inflationary
pressures could increase somewhat in the months ahead and that the Federal
Reserve is likely to raise interest rates further, on top of the three rate
increases already implemented since June 1999. We believe these conditions will
favor our value style of investing, which emphasizes companies that can generate
a high level of cash flow throughout the economic cycle.
1
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO - Unaudited
Nineteen ninety-nine was a difficult year for fixed-income investing. Although
securities with maturities of approximately three years or shorter provided
positive total returns (coupon plus price change), most longer maturities were
negative in their returns for the year. Reflecting these market conditions, the
U.S. Government Income Portfolio was down 1.9% for the year, compared with a
0.5% increase for the Lehman Brothers Intermediate Government Bond Index (the
"Index"). During the second half of the year, the Portfolio's total return of
0.2% compared with a 1.0% rise in the Index.
The Portfolio invests in debt obligations issued or guaranteed by the U.S.
Government and its agencies or intermediaries. It primarily owns intermediate-
term securities and places a priority on maintaining a relatively stable net
asset value per share. The Portfolio is intended for investors seeking high
current income from investments in Government securities.
For the three years ended December 31, 1999, the Portfolio provided an average
annual total return of 4.3%, compared with an average annual total return of
5.5% for the Lehman Brothers Intermediate Government Bond Index. From its
inception on January 3, 1995 through December 31, 1999 the Portfolio provided an
average annual total return of 5.8%, compared with 6.9% for the index. Returns
take into account expenses incurred by the Portfolio, but not separate account
charges imposed by the insurance company.
A year-and-a-half ago, investor concerns centered on the risks of a global
economic downturn, the Russian debt default, and the possibility of deflation,
causing interest rates to decline. Since that time, conditions have changed
dramatically. Many emerging market economies have rebounded and Japan seems to
be pulling out of its long recession. Moreover, with the continued strength of
the U.S. economy, low unemployment and a surging stock market, interest rates
have turned upward during the past year on renewed concerns over inflation.
As we observe changes in the bond market, we search for the most advantageous
combination of yield and risk. In other words, we seek to increase the
Portfolio's yield with little or no change in risk or, vice-versa, we seek
investment situations that reduce risk with no change in yield. During 1999, we
reduced the Portfolio's investments in U.S. Treasury securities. Federal budget
surpluses have led to net reductions in the amount of Treasury securities
outstanding, resulting in a scarcity value that has held down Treasury yields in
comparison to other types of fixed income securities. We increased the
Portfolio's holdings of U.S. government agency and mortgage-related securities,
where we have found attractive yields, and added a small position in corporate
bonds.
At December 31, the Portfolio's net assets were allocated 54.4% to U.S.
Government Agency and Mortgate-Related securities, 27.3% to U.S. Treasury
securities, 5.0% to corporate bonds, and 13.3% to short-term investments. The
Portfolio's average maturity was 10.7 years at December 31, 1999.
Down markets do not continue forever, and bonds may in fact be poised to perform
well in 2000. We believe some increase in inflation is already priced into the
market, yet the actual inflation rate remains modest. In addition, history tells
us that two down years in a row would be a very unusual occurrence; there have
not been two consecutive losing years in the bond market in more than a quarter
century. We see value in the bond market today and continue to go about our
process of investing in those maturities, sectors and credit categories where we
find the highest yields at the lowest relative cost with the least amount of
risk.
2
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
- --------- -----
<S> <C> <C>
CORPORATE BONDS -- 5.0%
Ford Motor Credit Corp.,
$ 500 6.70%, 7/16/04 (cost - $499,245).................. $489,375
--------
MORTGAGE-RELATED -- 43.8%
Federal Home Loan Mortgage Corp.,
175 6.22%, 3/24/03................................... 171,966
125 7.75%, 11/7/01.................................... 127,285
150 8.115%,1/31/05.................................... 157,359
Federal National Mortgage Association,
624 6.00%, 3/1/13-9/1/13............................. 592,741
980 6.50%, 4/29/09................................... 917,065
459 7.50%, 11/1/27.................................... 453,682
2 9.00%, 8/1/02.................................... 1,926
150 9.20%, 9/11/00................................... 152,837
52 9.50%, 12/1/06-12/1/19............................ 55,301
Government National Mortgage Association,
977 4.00%, 10/20/25................................... 873,995
826 7.00%, 3/15/28-6/15/28........................... 797,981
---------
Total Mortgage-Related (cost - $4,497,631)............ 4,302,138
---------
U.S. GOVERNMENT AGENCY -- 12.1%
Federal Home Loan Bank Discount Notes,
200 4.15%, 1/18/00................................. 199,608
Student Loan Marketing Association,
100 7.20%, 11/9/00................................. 100,609
Tennessee Valley Authority,
1,000 5.375%, 11/13/08............................... 888,750
---------
Total U.S. Government Agency
(cost - $1,299,622)...................... 1,188,967
---------
U.S. TREASURY NOTES AND BONDS -- 38.2%
1,100 5.125%, 8/31/00................................ 1,097,147
1,000 5.75%, 11/15/00................................ 996,870
875 5.875%,11/30/01................................ 869,391
95 6.25%, 4/30/01................................ 95,074
200 6.50%, 5/31/02................................ 200,968
475 7.25%, 8/15/22................................ 500,755
---------
Total U.S. Treasury Notes and Bonds
(cost - $3,842,754)......................... 3,760,205
---------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments (cost - $10,139,252)... 99.1% 9,740,685
Other assets less liabilities............ 0.9 89,131
---- ----------
Net Assets.............................. 100.0% $9,829,816
===== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost - $10,139,252).......... $ 9,740,685
Cash................................................ 4,141
Interest receivable................................. 108,963
Prepaid expenses.................................... 194
-----------
Total Assets....................................... 9,853,983
-----------
Liabilities:
Payable for shares of beneficial interest redeemed.. 8,541
Investment advisory fee payable..................... 1,054
Accrued expenses.................................... 14,572
-----------
Total Liabilities.................................. 24,167
-----------
Net Assets....................................... $ 9,829,816
===========
Composition of Net Assets:
Par value ($.01 per share).......................... $ 9,826
Paid-in-capital in excess of par.................... 10,250,579
Accumulated net realized loss on investments........ (32,022)
Net unrealized depreciation on investments.......... (398,567)
-----------
Net Assets....................................... $ 9,829,816
===========
Shares outstanding 982,573
-----------
Net asset value per share. $10.00
======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest............................................ $ 602,366
---------
Expenses:
Investment advisory fees............................ 63,217
Custodian fees...................................... 15,924
Audit and tax service fees.......................... 11,318
Transfer agent fees................................. 3,977
Trustees' fees and expenses......................... 2,394
Reports to shareholders............................. 968
Legal fees.......................................... 171
Miscellaneous....................................... 1,804
---------
Total expenses.................................... 99,773
Less: expense offset.............................. (770)
---------
Net expenses..................................... 99,003
---------
Net investment income............................ 503,363
---------
Realized and Unrealized Loss on Investments:
Net realized loss on investments.................... (31,440)
Net change in unrealized appreciation/depreciation
on investments..................................... (628,105)
---------
Net realized and unrealized loss on investments. (659,545)
---------
Net decrease in net assets resulting from operations. $(156,182)
==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 (Unaudited) 1998
---- ----
Operations:
<S> <C> <C>
Net investment income.............................................. $ 503,363 $ 411,556
Net realized gain (loss) on investments............................ (31,440) 151,330
Net change in unrealized appreciation/depreciation on investments.. (628,105) 89,811
----------- -----------
Net increase (decrease) in net assets resulting from operations... (156,182) 652,697
----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income.............................................. (503,363) (411,556)
Net realized gains................................................. -- (149,402)
----------- -----------
Total dividends and distributions to shareholders................. (503,363) (560,958)
----------- -----------
Share Transactions:
Net proceeds from the sale of shares............................... 3,365,635 5,717,541
Reinvestment of dividends and distributions........................ 503,365 560,300
Cost of shares redeemed............................................ (3,921,601) (2,810,893)
----------- -----------
Net increase (decrease) in net assets from share transactions..... (52,601) 3,466,948
----------- -----------
Total increase (decrease) in net assets......................... (712,146) 3,558,687
Net Assets:
Beginning of year.................................................. 10,541,962 6,983,275
----------- -----------
End of year........................................................ $ 9,829,816 $10,541,962
=========== ===========
Shares Issued and Redeemed:
Issued............................................................. 326,391 535,354
Issued in reinvestment of dividends and distributions.............. 49,145 52,582
Redeemed........................................................... (382,260) (263,013)
----------- -----------
Net increase (decrease)........................................... (6,724) 324,923
=========== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each period
(1999 Unaudited):
<TABLE>
<CAPTION>
Year ended December 31, For the Period
--------------------------------------------------------- January 3, 1995 (1)
1999 1998 1997 1996 December 31, 1995
---------- ------------ ----------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $10.66 $10.51 $10.38 $10.62 $10.00
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income......................... 0.49 0.53 0.57 0.55 0.60
Net realized and unrealized gain (loss) on
investments.................................. (0.66) 0.31 0.14 (0.24) 0.68
------ ------ ------ ------ ------
Total income (loss) from investment operations (0.17) 0.84 0.71 0.31 1.28
------ ------ ------ ------ ------
Dividends and Distributions to Shareholders
from:
Net investment income......................... (0.49) (0.53) (0.57) (0.55) (0.60)
Net realized gains............................ -- (0.16) (0.01) -- (0.06)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders.............................. (0.49) (0.69) (0.58) (0.55) (0.66)
------ ------ ------ ------ ------
Net asset value, end of period................ $10.00 $10.66 $10.51 $10.38 $10.62
====== ====== ====== ====== ======
Total Return (2)............................. (1.8)% 8.1% 7.0% 3.0% 13.1%
====== ==== ==== ==== =====
Ratios/Supplemental data:
Net assets, end of period (000's).............. $9,830 $10,542 $6,983 $3,422 $1,442
Ratio of expenses to average net assets (3).... 0.95% 1.00%(4) 0.93%(4) 0.96%(4) 0.75%(4)(5)
Ratio of net investment income to average net
assets (3).................................... 4.78% 4.96%(4) 5.51%(4) 5.27%(4) 5.75%(4)(5)
Portfolio Turnover............................. 69% 80% 80% 31% 65%
</TABLE>
(1) Commencements of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for
a period of less than one year is not annualized.
(3) Inclusive of expenses offset by earnings credits from custodian bank (See 1G
in Notes to Financial Statements).
(4) During the fiscal periods indicated above, the Adviser waived a portion or
all of its fees and assumed a portion of the Portfolio's expenses. If such
waivers and assumptions had not been in effect, the ratios of 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.
(5) Annualized
7
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(continued) - Unaudited
(1) Organization and Significant Accounting Policies
OCC Accumulation Trust (the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio, the U.S. Government Income Portfolio (the "Portfolio") and
the 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 debt securities (other than short-term obligations) are valued each
business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed "matrix" prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Trustees. The ability of issuers of debt instruments to meet their
obligations may be affected by economic developments in a specific industry or
region.
(B) Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders; accordingly, no
federal income tax provision is required.
(C) Investment Transactions and Other Income
Investment transactions are accounted for on the trade date. In determining the
gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Interest income is accrued as
earned. Discounts or premiums on debt securities purchased are accreted or
amortized to interest income over the lives of the respective securities.
(D) Dividends and Distributions
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolio records dividends and distributions to its shareholders on the
ex-dividend date. The amount of dividends and distributions 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 as a tax return of capital.
8
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(continued) - Unaudited
(1) Organization and Significant Accounting Policies--(concluded) (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) Expense Offset
The Portfolio benefits from an expense offset arrangement with its custodian
bank whereby uninvested cash balances earn credits which reduce monthly
custodian fees. Had these cash balances been invested in income producing
securities, they would have generated income for the Portfolio.
(H) Trustees' Retirement Plan
The trustees have adopted a Retirement Plan (the "Plan") effective January 1,
1999. The Plan 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. For the year ended December 31, 1999, the
Portfolio accrued $982 in connection with the Plan.
(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 .60%. 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 any expense offset) on an annual basis.
(3) Investments in Securities
For federal income tax purposes the cost of securities owned at December 31,
1999 was $10,139,252. Accordingly, net unrealized depreciation of investments
of $398,567 was comprised of gross appreciation of $1,617 for those investments
having an excess of value over cost and gross depreciation of $400,193 for
those investments having an excess of cost over value.
For the year ended December 31, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $6,614,567 and
$7,232,838, respectively.
At December 31, 1999, the Portfolio had a capital loss carryforward of $32,022,
available as a reduction, to the extent provided in the regulations, of any
future net realized capital gains realized before the end of fiscal year 2007.
To the extent that these losses are used to offset future realized capital
gains, such gains will not be distibuted.
(4) Acquisition of Investment Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subsidiary, PIMCO Advisors L.P. ("PIMCO Advisors"), and Allianz AG ("Allianz")
announced that they have reached a definitive agreement for Allianz, a German
insurance company, to acquire majority ownership of PIMCO Advisors, including
all of the interests held by PAH (the "Allianz Transaction"). For the
Portfolio, the change of control as a result of the
9
<PAGE>
OCC ACCUMULATION TRUST
U.S GOVERNMENT INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(continued)
(4) Acquisition of Investment Adviser--(concluded)
consummation of the Allianz Transaction (expected to close by the end of the
first quarter of 2000) will result in the automatic termination of the current
investment advisory agreement with OpCap Advisors. The trustees have approved a
new agreement with OpCap Advisors to become effective upon consummation of the
Allianz Transaction. The new agreement will be submitted for approval by the
stockholders of the Portfolio.
10
<PAGE>
OCC ACCUMULATION TRUST
MANAGED BY
[OPCAP ADVISORS LOGO]
1999 Annual Report - Unaudited
The stock market in 1999 was characterized by two contradictory trends: the
rapid price escalation of many technology stocks, especially those associated
with e-commerce and the Internet, and a widespread malaise among stocks in most
other industry sectors. The Standard & Poor's 500 Index (the "S&P 500") rose
21.0% during the year, returning more than 20% for a record fifth consecutive
year. However, this performance distorted the overall direction of the market.
Without its technology stock component, the S&P 500 would have been down 1% in
1999. In fact, approximately 60% of the stocks on the New York Stock Exchange
declined in price during the year.
The year was especially challenging for value investors such as ourselves.
Stocks of many quality companies with strong competitive positions, high cash
flow and favorable earnings prospects--the types of stocks in which we invest--
were out of favor, trailing the market indexes by a wide margin. As a result,
our investment returns generally fell short of our benchmarks in 1999.
We have always been thoughtful in our value style to give consideration to
companies across the breadth of the market, including technology companies. In
fact, we did well with several technology investments during the past year,
including Computer Associates and Motorola in the United States and Ericsson and
Alcatel in Europe. However, in the current ebullient market for technology
stocks, it has become increasingly difficult to find value in the sector.
Regardless of whether the current technology stock craze turns out to be a
bubble that bursts, the technology industry is growing rapidly and creating
enormous economic wealth. Our challenge as value investors, therefore, is to
identify solid companies that stand to benefit from this growth.
At OpCap Advisors, we continue to invest in our people and our operation to
ensure we have the necessary resources to meet this challenge. Our firm has
moved aggressively to hire additional investment personnel and has made
important reallocations of people and resources to best apply investment skills
not only to technology stocks, but to other industry sectors as well. We have
established "sector" groups, involving the integration of our domestic and
international analysts, to ensure timely and complete coverage of investment
opportunities wherever they may exist.
By remaining disciplined in our value style, and taking the necessary actions to
keep pace with an ever-evolving stock market, we are focused on delivering
excellent long-term investment results without taking large risks. We believe
many of the stocks we own are significantly undervalued, providing opportunities
for substantial profits as undervalued securities of financially solid, growing
companies return to favor.
As the new year begins, the U.S. economy remains strong, perhaps too strong, and
there are indications of excessive optimism in the stock market. Inflation has
been kept low for the past several years by an internationally competitive
environment, major improvements in technology, corporate mergers and
restructurings, and low inflation expectations. Recently, however, some of these
factors have reversed. Commodity prices have rebounded strongly, while energy
and import prices are on the rise. These factors suggest to us that inflationary
pressures could increase somewhat in the months ahead and that the Federal
Reserve is likely to raise interest rates further, on top of the three rate
increases already implemented since June 1999. We believe these conditions will
favor our value style of investing, which emphasizes companies that can generate
a high level of cash flow throughout the economic cycle.
1
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO - Unaudited
While continuing its excellent long-term performance record, results of the
Managed **Portfolio in 1999 were disappointing and did not meet our
expectations. The Portfolio provided a total return of 5.0% in the year,
compared with a return of 21.0% for the Standard & Poor's 500 Index with
dividends included (the "S&P 500"). The S&P 500 is an unmanaged index of 500 of
the largest corporations weighted by market capitalization. The Portfolio's
return in the second half of the year was (2.1)%, compared with a rise of 7.7%
for the S&P 500.
The Portfolio invests in stocks, bonds and cash equivalents, with a bias toward
stocks, which have outperformed other classes of investments for nearly every
five-year period since the Depression. Results in the year and the half were
hindered, in particular, by our only limited holdings of technology stocks,
which dominated the market's advance in 1999. We seek to be thoughtful in our
value style of investing to give consideration to companies across the breadth
of the market, including technology companies. However, in the current ebullient
market for tech stocks, it has become difficult to find value in the sector
despite the enormous economic wealth being created by the technology industry.
We continue to look for opportunities to purchase technology stocks where prices
bear some reasonable relationship to underlying value.
For the three years ended December 31, 1999, the Portfolio delivered an average
annual total return of 11.2%, compared with 27.6% for the S&P 500. For the five
years ended December 31, 1999, the Portfolio's average annual total return of
19.7% compared with 28.5% for the S&P 500. For the ten years ended December 31,
1999, the Portfolio provided an average annual total return of 16.6%*, versus
18.2% for the S&P 500, while the Portfolio's average annual total return from
its inception on August 1, 1988 through December 31, 1999 was 17.7%*, compared
with 19.0% for the S&P 500. We believe these longer-term results are favorable
in light of our risk-averse investment style and the fact that the Portfolio
invests in bonds and short-term securities, not just stocks. Returns for the
Portfolio take into account expenses incurred by the Portfolio, but not other
charges imposed by the Variable Accounts.
Our investment philosophy is based on the premise that companies create wealth
by generating cash flow at high rates. That wealth is delivered to shareholders
by managements who use this cash wisely, such as for share repurchase or astute
acquisitions. Our criteria in buying the stocks of these companies include:
. Good businesses with growing free cash flow
. Management motivated to create wealth for shareholders
. Securities that can be purchased inexpensively
The objective of our approach is to acquire stocks for substantially less than
they are worth. While our investment style sometimes requires patience, we
believe the intrinsic value of a company--which is based on cash flow, earnings,
strength of balance sheet, competitive strengths and other factors--almost
always ends up being reflected over time in its share price.
During the fourth quarter, we established a new position in the common stock of
Anadarko Petroleum, an oil and gas exploration and production company. Anadarko
is well managed and, in our view, the share price is inexpensive in relation to
the company's business prospects. Eliminations in the quarter were Motorola and
Time Warner.
At December 31, 1999, approximately 20% of the Portfolio's assets were invested
in financial service, banking and insurance stocks, sectors that did not perform
well in 1999 due to investor concerns regarding the impact of
- --------------
* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"),
was effectively divided into two investment funds--the Old Trust and the
present OCC Accumulation Trust (the "Present Trust")--at which time the Present
Trust commenced operations. The total net assets of the Managed Portfolio
immediately after the transaction were $682,601,380 in the Old Trust and
$51,345,102 in the Present Trust. For the period prior to September 16, 1994,
the performance figures for the Managed Portfolio of the Present Trust reflect
the performance of the Managed Portfolio of the Old Trust.
2
<PAGE>
higher interest rates. If the U. S. economy remains on its current course, we
expect the Federal Reserve to raise short-term interest rates further, and we
are therefore monitoring our exposure to financial stocks to make sure we are
not overly vulnerable. During the fourth quarter, we repositioned the
Portfolio's financial holdings, taking money from superlative performers such as
Citigroup and using it to purchase stocks such as Freddie Mac whose share price
was down in 1999 despite continued strong earnings growth.
The Portfolio need not be fully invested in stocks and can own more defensive
income-producing instruments. At December 31, 1999, the Portfolio's net assets
were allocated 70% to common stocks and securities convertible into common
stocks, 10% to U.S Government/Agency securities, and 20% to short-term
investments. This represents a reduction in stocks and an increase in U.S.
Government/Agency securities and short-term investments during the fourth
quarter.
Our larger-than-normal cash position reflects our caution in adding to equity
holdings at a time when technology stocks keep rising and many other stocks
continue to languish. We think there are many opportunities in today's market to
buy quality businesses with solid fundamentals inexpensively, and that many of
these companies will improve their earnings as the economies of Asia and Europe
strengthen. We believe also, however, that we have the luxury of being
opportunistic about waiting for attractive prices and building our positions
over time given the current malaise of many non-tech issues.
The Portfolio's five largest equity positions at December 31, 1999 were Wells
Fargo, a financial conglomerate comprising one of the larger banks in the
Midwest and West, together with national mortgage and consumer finance
companies, representing 5.0% of the Portfolio's net assets; du Pont, a
diversified technology and industrial company, 4.9% of net assets; McDonald's, a
premier fast-food company with growing global markets, 4.8% of net assets;
Freddie Mac, the second largest insurer of home mortgages in the United States,
4.4% of net assets; and Computer Associates International, which designs and
markets computer software, 4.3% of net assets.
Major industry positions were: financial services , representing 10.4% of the
Portfolio's net assets at December 31, 1999; banking, 6.8% of net assets; food
services, 6.8% of net assets; chemicals, 6.0% of net assets; and technology,
5.9% of net assets.
We remain optimistic about the outlook for our style of value investing and
believe the Portfolio is positioned to perform well in the months ahead. For
2000, the consensus estimate of per share earnings growth for the S&P 500 stocks
is approximately 10%, while we expect our companies to increase their earnings
by 15% or more on average. In addition, the companies we own have strong
competitive positions, and on average their share prices trade at discounts to
the S&P 500. We believe the market will ultimately shift back to an emphasis on
company earnings and other fundamentals, benefiting our value approach.
3
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCK -- 69.4%
Aerospace/Defense -- 4.1%
790,000 Boeing Co.......................... $32,834,375
-----------
Banking -- 6.8%
35,000 M & T Bank Corp.................... 14,498,750
995,000 Wells Fargo & Co................... 40,235,312
-----------
54,734,062
-----------
Chemicals -- 6.0%
598,000 du Pont (E.I.) de Nemours & Co..... 39,393,250
254,700 Monsanto Co........................ 9,073,687
-----------
48,466,937
-----------
Conglomerates -- 3.8%
180,000 Minnesota Mining & Manufacturing Co 17,617,500
165,000 Textron, Inc....................... 12,653,438
-----------
30,270,938
-----------
Drugs & Medical Products -- 2.4%
481,000 American Home Products Corp........ 18,969,437
-----------
Energy -- 0.2%
52,500 Anadarko Petroleum Corp............ 1,791,562
-----------
Food Services -- 6.8%
490,000 Diageo plc ADR..................... 15,680,000
964,400 McDonald's Corp.................... 38,877,375
-----------
54,557,375
-----------
Insurance -- 2.9%
243,000 ACE Ltd............................ 4,055,062
377,960 XL Capital Ltd..................... 19,606,675
-----------
23,661,737
-----------
Machinery/Engineering -- 2.0%
335,400 Caterpillar, Inc................... 15,784,763
-----------
Manufacturing -- 2.5%
600,000 ITT Industries, Inc................ 20,062,500
-----------
Media/Broadcasting -- 3.9%
110,000 AMFM*.............................. 8,607,500
687,400 News Corp. Ltd. ADR+............... 22,984,938
-----------
31,592,438
-----------
Financial Services -- 10.4%
560,000 Citigroup, Inc..................... 31,115,000
755,000 Federal Home Loan Mortgage Corp.... 35,532,188
453,800 Household International............ 16,904,050
-----------
83,551,238
-----------
Paper Products -- 1.5%
195,200 Champion International Corp........ 12,090,200
-----------
</TABLE>
4
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(continued) - Unaudited
<TABLE>
<CAPTION>
Shares Value
- ------------ ------------
<S> <C> <C>
COMMON STOCK (concluded)
Printing/Publishing -- 1.0%
324,000 Donnelley (R.R.) & Sons Co. $ 8,039,250
------------
Real Estate -- 0.6%
1,399 Security Capital Group Inc., (Class A) *. 867,122
326,000 Security Capital Group Inc., (Class B) *. 4,075,000
------------
4,942,122
------------
Technology -- 5.9%
488,000 Compaq Computer Corp... 13,206,500
490,000 Computer Associates International, Inc. 34,269,375
------------
47,475,875
------------
Telecommunications -- 5.2%
225,000 Bell Atlantic Corp..... 13,851,563
419,400 Sprint Corp. (FON Group). 28,230,863
------------
42,082,426
------------
Transportation -- 2.5%
260,000 UAL Corp.*............. 20,166,250
------------
Waste Disposal -- 0.9%
410,000 Waste Management Inc... 7,046,875
------------
Total Common Stock (cost - $515,389,244). 558,120,360
------------
Principal
Amount
(000)
- ------------
U.S. GOVERNMENT AGENCY SECURITIES -- 9.8%
Federal National Mortgage Association,
$80,000 6.50%, 8/15/04 (cost - $79,039,592) 79,000,000
------------
U.S. TREASURY NOTES AND BONDS -- 0.1%
700 6.25 %, 8/15/23................................. 659,967
298 7.875%, 8/15/01................................. 304,938
------------
Total U.S. Treasury Notes and Bonds
(cost - $878,425)............................. 964,905
------------
</TABLE>
5
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(concluded)
<TABLE>
<CAPTION>
Principal
Amount
(000) Value
---- -----
<C> <S> <C> <C>
SHORT-TERM CORPORATE NOTES -- 8.6%
Automotive -- 5.3%
Ford Motor Credit Corp.,
$43,030 5.71%-6.07%, 1/13/00-1/28/00....................... $ 42,908,200
------------
Financial Services -- 3.3%
American Express Credit Corp.,
26,449 5.85%-6.00%, 1/28/00................................ 26,330,171
------------
Total Short-Term Corporate Notes (cost - $69,238,372) 69,238,371
------------
U.S. GOVERNMENT AGENCY NOTES -- 10.6%
Federal Home Loan Bank Discount Notes,
$17,443 1.50%, 1/3/00.................................... 17,441,546
1,515 4.15%, 1/18/00................................... 1,512,031
12,735 5.00%, 1/31/00................................... 12,681,938
25,458 5.58%, 1/19/00-1/21/00........................... 25,380,694
20,170 5.66%, 1/31/00................................... 20,074,865
8,375 5.78%, 1/19/00................................... 8,350,796
------------
Total U.S. Government Agency Notes (cost $85,441,870)... 85,441,870
------------
Total Investments (cost - $749,987,503)................. 98.5% 792,765,506
Other assets less liabilities........................... 1.5 11,701,750
----- ------------
Net Assets.............................................. 100.0% $804,467,256
===== ===========
</TABLE>
- ------------------
* Non-income producing security
+ Preferred stock
ADR -- American Depositary Receipt
See accompanying notes to financial statements.
6
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost - $749,987,503)......... $792,765,506
Cash................................................ 2,703
Receivable for invesments sold...................... 16,114,120
Dividends and interest receivable................... 2,425,142
Receivable for shares of beneficial interest sold... 268,310
Prepaid expenses.................................... 3,082
------------
Total Assets....................................... 811,578,863
------------
Liabilities:
Payable for investments purchased................... 6,564,120
Payable for shares of beneficial interest redeemed.. 228,015
Investment advisory fee payable..................... 100,127
Accrued expenses.................................... 219,345
------------
Total Liabilities.................................. 7,111,607
------------
Net Assets......................................... $804,467,256
============
Composition of Net Assets:
Par value ($.01 per share).......................... $ 184,293
Paid-in-capital in excess of par.................... 695,877,809
Accumulated net investment income................... 10,021,896
Accumulated net realized gain on investments........ 55,605,255
Net unrealized appreciation on investments.......... 42,778,003
------------
Net Assets......................................... $804,467,256
============
</TABLE>
Shares outstanding 18,429,335
-------------
Net asset value per share. $43.65
=============
See accompanying notes to financial statements.
7
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1999 - Unaudited
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $109,285)............ $ 9,259,335
Interest............................................................ 7,327,964
------------
Total investment income........................................... 16,587,299
------------
Expenses:
Investment advisory fees............................................ 6,116,104
Trustees' fees and expenses......................................... 161,716
Reports to shareholders............................................. 94,904
Custodian fees...................................................... 86,993
Transfer agent fees................................................. 58,706
Audit and tax service fees.......................................... 32,315
Legal fees.......................................................... 11,576
Miscellaneous....................................................... 8,655
------------
Total expenses.................................................... 6,570,969
Less: expense offset.............................................. (5,572)
------------
Net expenses..................................................... 6,565,397
------------
Net investment income............................................ 10,021,902
------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments.................................... 58,154,646
Net change in unrealized appreciation/depreciation on investments... (29,206,986)
------------
Net realized and unrealized gain on investments................... 28,947,660
------------
Net increase in net assets resulting from operations................. $ 38,969,562
============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 (Unaudited) 1998
---- ----
<S> <C> <C>
Operations:
Net investment income from:.................................................... $ 10,021,902 $ 11,467,184
Net realized gain on investments............................................... 58,154,646 23,587,489
Net change in unrealized appreciation/depreciation on investments.............. (29,206,986) (185,933)
------------- ------------
Net increase in net assets resulting from operations.......................... 38,969,562 34,868,740
------------- ------------
Dividends and Distributions to Shareholders from:
Net investment income.......................................................... (11,467,182) (4,115,649)
Net realized gains............................................................. (25,731,922) (16,508,556)
------------- ------------
Total dividends and distributions to shareholders............................. (37,199,104) (20,624,205)
------------- ------------
Share Transactions:
Net proceeds from the sale of shares........................................... 142,108,078 339,789,141
Reinvestment of dividends and distributions.................................... 37,199,104 20,624,205
Cost of shares redeemed........................................................ (153,697,507) (64,361,982)
------------- ------------
Net increase in net assets from share transactions............................ 25,609,675 296,051,364
------------- ------------
Total increase in net assets................................................ 27,380,133 310,295,899
Net Assets:
Beginning of year.............................................................. 777,087,123 466,791,224
------------- ------------
End of year (including undistributed net investment income of $10,021,896 and
$11,467,176, respectively).................................................... $ 804,467,256 $777,087,123
============= ============
Shares Issued and Redeemed
Issued......................................................................... 3,293,544 7,796,148
Issued in reinvestment of dividends and distributions.......................... 916,460 476,642
Redeemed....................................................................... (3,547,618) (1,520,543)
------------- ------------
Net increase.................................................................. 662,386 6,752,247
============= ============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year
(1999 Unaudited):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................. $43.74 $42.38 $36.21 $30.14 $20.83
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income............................. 0.56 0.60 0.34 0.43 0.42
Net realized and unrealized gain on investments... 1.47 2.40 7.45 6.31 9.02
------ ------ ------ ------ ------
Total income from investment operations.......... 2.03 3.00 7.79 6.74 9.44
------ ------ ------ ------ ------
Dividends and distributions to shareholders from:
Net investment income............................. (0.65) (0.33) (0.40) (0.41) (0.13)
Net realized gains................................ (1.47) (1.31) (1.22) (0.26) --
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders.................................... (2.12) (1.64) (1.62) (0.67) (0.13)
------ ------ ------ ------ ------
Net asset value, end of year....................... $43.65 $43.74 $42.38 $36.21 $30.14
====== ====== ====== ====== ======
Total Return (1).................................. 5.0% 7.1% 22.3% 22.8% 45.6%
==== ==== ===== ===== =====
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios/Supplemental data:
Net assets, end of year (000's)................ $804,467 $777,087 $466,791 $180,728 $99,188
Ratio of expenses to average net assets (2).... 0.83% 0.82% 0.87% 0.84%(3) 0.66%(3)
Ratio of net investment income to average net
assets........................................ 1.27% 1.74% 1.42% 1.66%(3) 1.85%(3)
Portfolio Turnover............................. 38% 37% 32% 27% 22%
</TABLE>
(1) Assumes reinvestment of all dividends and distributions.
(2) For fiscal years ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank (See 1G in Notes to
Financial Statements).
(3) During the fiscal years indicated above, the Adviser waived a portion of
its fees. If such waivers had not been in effect, the ratios of net 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, and 0.74% and 1.77%, respectively, for the year ended
December 31, 1995.
10
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(1) Organization and Significant Accounting Policies
OCC Accumulation Trust ( the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio, the Global Equity Portfolio, the
Managed Portfolio (the "Portfolio"), the U.S. Government Income Portfolio and
the 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 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. Debt securities (other than
short-term obligations) are valued each business day by an independent pricing
service (approved by the Board of Trustees) using methods which include current
market quotations from a major market maker in the securities and trader-
reviewed "matrix" prices. Short-term debt securities having a remaining
maturity of sixty days or less are valued at amortized cost or amortized value,
which approximates market value. Any securities or other assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees. The ability of issuers of
debt instruments to meet their obligations may be affected by economic
developments in a specific industry or region.
(B) Federal Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders; accordingly, no
federal income tax provision is required.
(C) Investment Transactions and Other Income
Investment transactions are accounted for on the trade date. In determining the
gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) Dividends and Distributions
Dividends and distributions to shareholders from net investment income and net
realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on the
ex-dividend date. The amount of dividends and distributions 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
11
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(continued)
(1) Organization and Significant Accounting Policies (concluded)
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 as a tax return
of capital.
(E) Allocation of Expenses
Expenses specifically identifiable to a particular portfolio are borne by that
portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or another reasonable basis.
(F) Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
(G) Expense Offset
The Portfolio benefits from an expense offset arrangement with its custodian
bank whereby uninvested cash balances earn credits that reduce cusodian fees.
Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
(H) Trustees' Retirement Plan
The trustees have adopted a Retirement Plan (the "Plan") effective January 1,
1999. The Plan 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. For the year ended December 31, 1999, the
Portfolio accrued $71,695 in connection with the Plan.
(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 any expense offset) on an annual basis.
(3) Investments in Securities
For federal income tax purposes, the cost of securities owned at December 31,
1999 was $749,987,503. Accordingly, net unrealized appreciation of investments
of $42,778,003 was comprised of gross appreciation of $89,115,329 for those
investments having an excess of value over cost and gross depreciation of
$46,337,326 for those investments having an excess of cost over value.
For the year ended December 31, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $244,803,598 and
$350,171,550, respectively.
12
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(concluded)
(4) Acquisition of Investment Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subsidiary, PIMCO Advisors L.P. ("PIMCO Advisors"), and Allianz AG ("Allianz")
announced that they have reached a definitive agreement for Allianz, a German
insurance company, to acquire majority ownership of PIMCO Advisors, including
all of the interests held by PAH (the "Allianz Transaction"). For the Portfolio,
the change of control as a result of the consummation of the Allianz Transaction
(expected to close by the end of the first quarter of 2000) will result in the
automatic termination of the current investment advisory agreement with OpCap
Advisors. The trustees have approved a new agreement with OpCap Advisors to
become effective upon consummation of the Allianz Transaction. The new agreement
will be submitted for approval by the stockholders of the Portfolio.
13
<PAGE>
OCC ACCUMULATION TRUST
MANAGED BY
[OPCAP ADVISORS LOGO]
1999 Annual Report - Unaudited
The stock market in 1999 was characterized by two contradictory trends: the
rapid price escalation of many technology stocks, especially those associated
with e-commerce and the Internet, and a widespread malaise among stocks in most
other industry sectors. The Standard & Poor's 500 Index (the "S&P 500") rose
21.0% during the year, returning more than 20% for a record fifth consecutive
year. However, this performance distorted the overall direction of the market.
Without its technology stock component, the S&P 500 would have been down 1% in
1999. In fact, approximately 60% of the stocks on the New York Stock Exchange
declined in price during the year.
The year was especially challenging for value investors such as ourselves.
Stocks of many quality companies with strong competitive positions, high cash
flow and favorable earnings prospects--the types of stocks in which we invest--
were out of favor, trailing the market indexes by a wide margin. As a result,
our investment returns generally fell short of our benchmarks in 1999.
We have always been thoughtful in our value style to give consideration to
companies across the breadth of the market, including technology companies. In
fact, we did well with several technology investments during the past year,
including Computer Associates and Motorola in the United States and Ericsson and
Alcatel in Europe. However, in the current ebullient market for technology
stocks, it has become increasingly difficult to find value in the sector.
Regardless of whether the current technology stock craze turns out to be a
bubble that bursts, the technology industry is growing rapidly and creating
enormous economic wealth. Our challenge as value investors, therefore, is to
identify solid companies that stand to benefit from this growth.
At OpCap Advisors, we continue to invest in our people and our operation to
ensure we have the necessary resources to meet this challenge. Our firm has
moved aggressively to hire additional investment personnel and has made
important reallocations of people and resources to best apply investment skills
not only to technology stocks, but to other industry sectors as well. We have
established "sector" groups, involving the integration of our domestic and
international analysts, to ensure timely and complete coverage of investment
opportunities wherever they may exist.
By remaining disciplined in our value style, and taking the necessary actions to
keep pace with an ever-evolving stock market, we are focused on delivering
excellent long-term investment results without taking large risks. We believe
many of the stocks we own are significantly undervalued, providing opportunities
for substantial profits as undervalued securities of financially solid, growing
companies return to favor.
As the new year begins, the U.S. economy remains strong, perhaps too strong, and
there are indications of excessive optimism in the stock market. Inflation has
been kept low for the past several years by an internationally competitive
environment, major improvements in technology, corporate mergers and
restructurings, and low inflation expectations. Recently, however, some of these
factors have reversed. Commodity prices have rebounded strongly, while energy
and import prices are on the rise. These factors suggest to us that inflationary
pressures could increase somewhat in the months ahead and that the Federal
Reserve is likely to raise interest rates further, on top of the three rate
increases already implemented since June 1999. We believe these conditions will
favor our value style of investing, which emphasizes companies that can generate
a high level of cash flow throughout the economic cycle.
1
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO - Unaudited
The Mid Cap Portfolio provided a total return of 21.6% in 1999. The Portfolio
invests in companies with stock market capitalizations (the total market value
of a company's common shares outstanding) between $500 million and $5 billion at
time of purchase. Its 1999 performance compared with a 26.6% return for the
Wilshire Midcap 750 Index with dividends included (the "Wilshire 750"). The
Wilshire 750 is an unmanaged index of 750 mid-sized corporations weighted by
market capitalization.
The Portfolio's return of 16.2% in the second half of 1999 compared with 14.4%
for the Wilshire 750. From inception on February 9, 1998 through December 31,
1999, the Portfolio provided an average annual total return of 10.0% compared
with 16.3% for the Wilshire 750. Returns for the Portfolio take into account
expenses incurred by the Portfolio, but not other charges imposed by the
Variable Accounts.
In managing the Portfolio, we seek to generate excellent long-term results with
below-market risk by investing in mid cap companies with superior fundamentals
and inexpensive valuations. As a group, the mid cap stocks owned by the
Portfolio produce the same or better earnings growth and return on equity as the
broad mid cap indexes, yet their average valuations are lower. We believe this
combination of strong fundamentals and cheaper valuations will lead to higher
share prices over time.
Emmis Communications, one of the Portfolio's 10 largest holdings, contributed
significantly to performance during the second half of 1999. Emmis is a major
broadcasting company focused on radio and television operations in large media
markets. Despite one of the industry's best operating records, including strong
revenue and earnings performance, until recently Emmis had inexplicably been one
of the cheapest stocks in the radio sector. That is now changing, as several
developments have helped drive the stock's recent robust performance. The surge
in demand for airtime by Internet companies allows Emmis to increase prices and
the amount of airtime sold out in advance as traditional advertisers fear being
locked out. Increasing prices of network television are also driving advertisers
to seek cheaper alternatives in local television and radio airtime. In addition,
Liberty Media, the communications and broadcasting conglomerate controlled by
John Malone, purchased a 14% stake in Emmis in October, offering the prospect of
increased creative collaboration between Emmis and Liberty. The sale to Liberty
and a subsequent stock offering raised close to $400 million, which Emmis will
use to participate in the ongoing consolidation of the radio and television
industry.
WPP Group was another of our strong performers in 1999. WPP is one of the
world's largest advertising and marketing communications companies and, like
Emmis, is benefiting from growth in advertising demand. Moreover, management
continues to execute strongly in both margin improvement and renewed strength in
new account wins. Reflecting the company's excellent business performance, the
share price more than doubled in 1999.
During the fourth quarter of 1999, we established new positions in the common
stocks of SFX Entertainment (a live entertainment event promoter and sports
agency) and W.W. Grainger (distributor of maintenance, repair and operating
supplies). In addition, we received stock in Huttig Building Products, the
leading wholesale building products distributor, in a spin-off from Crane Co.,
one of our holdings.
At December 31, 1999, the Portfolio's net assets were invested 87.5% in common
stocks and 12.5% in short-term investments. The Portfolio's five largest equity
holdings were Applied Power, a diversified global producer of tools, equipment
and systems, representing 4.3% of the Portfolio's net assets; Parker-Hannifin, a
worldwide manufacturer of motion control and fluid processing products for
industrial and aerospace markets, 4.2% of net assets; Carlisle Companies, a
multi-industry manufacturing company, 4.1% of net assets; Teva Pharmaceutical,
an Israeli pharmaceutical company, 4.1% of net assets; and Anadarko Petroleum,
an oil and gas exploration and production company, 3.6% of net assets.
The Portfolio's top five industry positions at the end of December were:
electronics, representing 20.5% of the Portfolio's net assets; insurance, 12.0%
of net assets; advertising, 7.6% of net assets; manufacturing, 7.2% of net
assets; and media/broadcasting, 6.2% of net assets.
2
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Shares Value
------ ----------
<S> <C> <C>
COMMON STOCK -- 88.8%
Advertising -- 7.6%
1,650 Lamar Advertising Co.*................. $ 99,928
2,250 WPP Group plc ADR...................... 187,031
1,700 Young & Rubicam, Inc................... 120,275
----------
407,234
----------
Computer Services -- 2.4%
2,550 Sabre Group Holdings, Inc.*............ 130,688
----------
Conglomerates -- 2.6%
3,400 PerkinElmer, Inc....................... 141,737
----------
Consumer Products -- 2.8%
4,650 Avon Products, Inc..................... 153,450
----------
Containers -- 1.4%
5,700 American National Can Group, Inc....... 74,100
----------
Drugs & Medical Products -- 4.1%
3,050 Teva Pharmaceutical Industries Ltd. ADR 218,647
----------
Electronics -- 20.5%
6,300 Applied Power, Inc..................... 231,525
6,700 Arrow Electronics, Inc.*............... 170,013
2,300 Avnet, Inc............................. 139,150
1,600 Flextronics International Ltd.*........ 73,600
5,100 General Semiconductor, Inc.*........... 72,356
800 Jabil Circuit, Inc.*................... 58,400
2,300 Molex, Inc............................. 130,381
4,400 Parker-Hannifin Corp................... 225,775
----------
1,101,200
----------
Energy -- 3.6%
5,700 Anadarko Petroleum Corp................ 194,513
----------
Entertainment -- 0.9%
1,300 SFX Entertainment, Inc.*............... 47,044
----------
Financial Services -- 1.3%
2,900 Countrywide Credit Industries, Inc..... 73,225
----------
Food Services -- 1.7%
5,800 Bob Evans Farms, Inc................... 89,537
----------
Hotels -- 0.4%
9,800 Homestead Village, Inc.*............... 20,825
----------
Industrial Materials -- 1.5%
1,650 W.W. Grainger, Inc..................... 78,891
----------
</TABLE>
3
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(concluded) - Unaudited
<TABLE>
<CAPTION>
Shares Value
- -------- ------------
<S> <C> <C>
COMMON STOCK (concluded)
Insurance -- 12.0%
3,000 ACE Ltd................................ $ 50,063
2,928 Conseco, Inc........................... 52,338
3,700 Everest Reinsurance Holdings, Inc...... 82,556
2,850 PartnerRe Ltd.......................... 92,447
4,500 Protective Life Corp................... 143,156
1,800 RenaissanceRe Holdings Ltd............. 73,575
2,900 XL Capital Ltd......................... 150,437
----------
644,572
----------
Machinery/Engineering -- 2.9%
3,450 Dover Corp............................. 156,544
----------
Manufacturing -- 7.2%
6,100 Carlisle Cos., Inc..................... 219,600
8,125 Crane Co............................... 161,484
1,806 Huttig Building Products, Inc.......... 8,915
----------
389,999
----------
Media/Broadcasting -- 6.2%
2,043 AMFM, Inc.*............................ 159,865
1,400 Emmis Communications Corp.*............ 174,497
----------
334,362
----------
Real Estate -- 4.5%
9,500 ProLogis Trust......................... 182,875
4,700 Security Capital Group, Inc. (Class B)* 58,750
----------
241,625
----------
Textiles/Apparel -- 1.0%
3,500 Shaw Industries, Inc................... 54,031
----------
Transportation -- 4.2%
4,500 Air Express International Corp......... 145,406
2,000 C.H. Robinson Worldwide................ 79,500
----------
224,906
----------
Total Common Stock (cost - $4,183,615)... 4,777,130
----------
<CAPTION>
Principal
Amount
(000)
- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCY -- 12.6%
$680 Federal Home Loan Bank Discount Notes,
1.50%, 1/3/00 (cost - $679,943)......... 679,943
----------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments (cost - $4,863,558)..... 101.4% 5,457,073
Liabilities in excess of other assets..... (1.4) (75,140)
----- ---------
Net Assets................................ 100.0% $5,381,933
===== ==========
</TABLE>
- ---------------------------
* Non-income producing security
ADR -- American Depositary Receipt
See accompanying notes to financial statements.
4
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at value (cost - $4,863,558)..... $5,457,073
Cash.......................................... 4,545
Dividends receivable.......................... 1,332
Other assets.................................. 518
----------
Total Assets................................. 5,463,468
----------
Liabilities:
Payable for investments purchased............. 67,162
Accrued expenses.............................. 14,373
----------
Total Liabilities............................ 81,535
----------
Net Assets................................... $5,381,933
==========
Composition of Net Assets:
Par value ($.01 per share).................... $ 4,627
Paid-in-capital in excess of par.............. 4,627,643
Accumulated net realized gain on investments.. 156,148
Net unrealized appreciation on investments.... 593,515
----------
Net Assets................................... $5,381,933
==========
Shares outstanding............................ 462,671
----------
Net asset value per share..................... $11.63
======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1999 - Unaudited
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $255)..................... $ 43,649
Interest................................................................. 12,590
--------
Total investment income................................................ 56,239
--------
Expenses:
Investment advisory fees................................................. 27,810
Custodian fees........................................................... 14,947
Audit and tax service fees............................................... 12,112
Transfer agent fees...................................................... 3,016
Reports to shareholders.................................................. 543
Trustees' fees and expenses.............................................. 197
Miscellaneous............................................................ 1,466
--------
Total expenses......................................................... 60,091
Less: Investment advisory fees waived and expenses assumed by adviser.. (24,246)
Less: expense offset................................................... (1,082)
--------
Net expenses........................................................... 34,763
--------
Net investment income.................................................. 21,476
--------
Realized and Unrealized Gain on Investments:
Net realized gain on investments:........................................ 268,712
Net change in unrealized appreciation/depreciation on investments........ 582,994
--------
Net realized and unrealized gain on investments........................ 851,706
--------
Net increase in net assets resulting from operations...................... $873,182
========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS - 1999 Unaudited
<TABLE>
<CAPTION>
For the Period
Year ended February 9, 1998 *
December 31, 1999 to December 31, 1998
------------------ ---------------------
<S> <C> <C>
Operations:
Net investment income.............................................. $ 21,476 $ 9,196
Net realized gain (loss) on investments............................ 268,712 (8,419)
Net change in unrealized appreciation/depreciation on investments.. 582,994 10,521
----------- ----------
Net increase in net assets resulting from operations.............. 873,182 11,298
----------- ----------
Dividends and Distributions to Shareholders from:
Net investment income.............................................. (21,378) (9,196)
Net realized gains................................................. (104,243) --
----------- ----------
Total dividends and distributions to shareholders................. (125,621) (9,196)
----------- ----------
Share Transactions:
Net proceeds from the sale of shares............................... 4,615,546 2,061,371
Reinvestment of dividends and distributions........................ 125,621 4,411
Cost of shares redeemed............................................ (1,991,819) (182,860)
----------- ----------
Net increase in net assets from share transactions................ 2,749,348 1,882,922
----------- ----------
Total increase in net assets.................................... 3,496,909 1,885,024
Net Assets:
Beginning of period................................................ 1,885,024 --
----------- ----------
End of period...................................................... $ 5,381,933 $1,885,024
=========== ==========
Shares Issued and Redeemed:
Issued............................................................. 462,769 211,535
Issued in reinvestment of dividends and distributions.............. 10,801 451
Redeemed........................................................... (203,400) (19,485)
----------- ----------
Net increase...................................................... 270,170 192,501
=========== ==========
</TABLE>
- --------------------
* Commencement of operations
See accompanying notes to financial statements.
7
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each period
(1999 Unaudited):
<TABLE>
<CAPTION>
For the Period
Year ended February 9, 1998 (1)
December 31, 1999 to December 31, 1998
------------------ ---------------------
<S> <C> <C>
Net asset value, beginning of period...................... $ 9.79 $10.00
------ ------
Income from Investment Operations:
Net investment income.................................... 0.05 0.05
Net realized and unrealized gain (loss) on investments... 2.07 (0.21)
------ ------
Total income (loss) from investment operations......... 2.12 (0.16)
------ ------
Dividends and Distributions to Shareholders from:
Net investment income.................................... (0.05) (0.05)
Net realized gains....................................... (0.23) --
------ ------
Total dividends and distributions to shareholders...... (0.28) (0.05)
------ ------
Net asset value, end of period............................ $11.63 $ 9.79
====== ======
Total Return (2).......................................... 21.6% (1.6)%
===== ======
Ratios/Supplemental data:
Net assets, end of period (000's)............................ $5,382 $1,885
Ratio of expenses to average net assets (4)(5)............... 1.03% 1.05%(3)
Ratio of net investment income to average net assets (4)(5).. 0.62% 0.78%(3)
Portfolio Turnover........................................... 92% 38%
</TABLE>
- -----------------
(1) Commencement of operations
(2) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(3) Annualized
(4) Inclusive of expenses offset by earnings credits from custodian bank (See 1G
in Notes to Financial Statements).
(5) During the fiscal periods indicated above, the Adviser waived its fee and
assumed a portion of the Portfolio's expenses. If such waivers and
assumptions had not been in effect, the ratios of expenses to average net
assets and the ratios of net investment income (loss) to average net assets
would have been 1.70% and (0.05%), respectively, for the year ended December
31, 1999, and 4.28% and (2.46%), (annualized), respectively, for the period
February 9, 1998 (commencement of operations) to December 31, 1998.
8
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(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. 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 as a tax return of capital.
9
<PAGE>
OCC ACCUMULATION TRUST
MID CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(concluded)
(1) Organization and Significant Accounting Policies (continued)
(E) Allocation of Expenses
Expenses specifically identifiable to a particular portfolio are borne by that
portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios 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) Expense Offset
The Portfolio benefits from an expense offset arrangement with its custodian
bank whereby uninvested cash balanaces earn credits which reduce monthly
custodian fees. Had these cash balances been invested in income producing
securities, they would have generated income for the Portfolio.
(H) Trustees' Retirement Plan
The trustees have adopted a Retirement Plan (the "Plan") effective January 1,
1999. The Plan 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. For the year ended December 31, 1999, the
Portfolio accrued $197 in connection with the retirement plan.
(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 any expense offset) on an annual basis.
(3) Investments in Securities
For federal income tax purposes the cost of securities owned at December 31,
1999 was $4,863,558. Accordingly, net unrealized appreciation of investments of
$593,515 was comprised of gross appreciation of $834,420 for those investments
having an excess of value over cost and gross depreciation of $240,905 for
those investments having an excess of cost over value.
For the year ended December 31, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $5,572,828 and
$3,482,285, respectively.
(4) Acquisition of Investment Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subsidiary, PIMCO Advisors L.P. ("PIMCO Advisors"), and Allianz AG ("Allianz")
announced that they have reached a definitive agreement for Allianz, a German
insurance company, to acquire majority ownership of PIMCO Advisors, including
all of the interests held by PAH (the "Allianz Transaction"). For the
Portfolio, the change of control as a result of the consummation of the Allianz
Transaction (expected to close by the end of the first quarter of 2000) will
result in the automatic termination of the current investment advisory
agreement with OpCap Advisors. The trustees have approved a new agreement with
OpCap Advisors to become effective upon consummation of the Allianz
Transaction. The new agreement will be submitted for approval by the
stockholders of the Portfolio.
10
<PAGE>
OCC ACCUMULATION TRUST
MANAGED BY
[OPCAP ADVISORS LOGO]
1999 Annual Report - Unaudited
The stock market in 1999 was characterized by two contradictory trends: the
rapid price escalation of many technology stocks, especially those associated
with e-commerce and the Internet, and a widespread malaise among stocks in most
other industry sectors. The Standard & Poor's 500 Index (the "S&P 500") rose
21.0% during the year, returning more than 20% for a record fifth consecutive
year. However, this performance distorted the overall direction of the market.
Without its technology stock component, the S&P 500 would have been down 1% in
1999. In fact, approximately 60% of the stocks on the New York Stock Exchange
declined in price during the year.
The year was especially challenging for value investors such as ourselves.
Stocks of many quality companies with strong competitive positions, high cash
flow and favorable earnings prospects--the types of stocks in which we invest--
were out of favor, trailing the market indexes by a wide margin. As a result,
our investment returns generally fell short of our benchmarks in 1999.
We have always been thoughtful in our value style to give consideration to
companies across the breadth of the market, including technology companies. In
fact, we did well with several technology investments during the past year,
including Computer Associates and Motorola in the United States and Ericsson and
Alcatel in Europe. However, in the current ebullient market for technology
stocks, it has become increasingly difficult to find value in the sector.
Regardless of whether the current technology stock craze turns out to be a
bubble that bursts, the technology industry is growing rapidly and creating
enormous economic wealth. Our challenge as value investors, therefore, is to
identify solid companies that stand to benefit from this growth.
At OpCap Advisors, we continue to invest in our people and our operation to
ensure we have the necessary resources to meet this challenge. Our firm has
moved aggressively to hire additional investment personnel and has made
important reallocations of people and resources to best apply investment skills
not only to technology stocks, but to other industry sectors as well. We have
established "sector" groups, involving the integration of our domestic and
international analysts, to ensure timely and complete coverage of investment
opportunities wherever they may exist.
By remaining disciplined in our value style, and taking the necessary actions to
keep pace with an ever-evolving stock market, we are focused on delivering
excellent long-term investment results without taking large risks. We believe
many of the stocks we own are significantly undervalued, providing opportunities
for substantial profits as undervalued securities of financially solid, growing
companies return to favor.
As the new year begins, the U.S. economy remains strong, perhaps too strong, and
there are indications of excessive optimism in the stock market. Inflation has
been kept low for the past several years by an internationally competitive
environment, major improvements in technology, corporate mergers and
restructurings, and low inflation expectations. Recently, however, some of these
factors have reversed. Commodity prices have rebounded strongly, while energy
and import prices are on the rise. These factors suggest to us that inflationary
pressures could increase somewhat in the months ahead and that the Federal
Reserve is likely to raise interest rates further, on top of the three rate
increases already implemented since June 1999. We believe these conditions will
favor our value style of investing, which emphasizes companies that can generate
a high level of cash flow throughout the economic cycle.
1
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO - Unaudited
Value stocks of the type owned by the Small Cap Portfolio, stocks of well-
managed smaller companies with strong competitive positions and high cash flow,
underperformed the rest of the stock market by a wide margin in 1999.
Consequently, the Portfolio declined 1.8% during the year, compared with a 21.3%
increase for the Russell 2000 Index with dividends included (the "Russell
2000"), a widely followed benchmark that includes smaller capitalization stocks.
In the second half of the year, the Portfolio declined 5.2%, compared with an
11.0% increase in the Russell 2000.
During the year, investors bid up the share prices of technology companies,
especially companies associated with e-commerce and the Internet, while ignoring
the many opportunities we believe exist at this time in the small cap value
sector. Unfortunately, small cap value was the worst performing sector of the
market in 1999. Especially striking was the large difference in performance
between the Russell 2000 Growth Index, which rose 43.1% during the year, and the
Russell 2000 Value Index, which declined 1.5%. Growth stocks include those
projected to have steady earnings increases, while value stocks include those
that are believed to be significantly underpriced in relation to their inherent
value. Performance differentials between value and growth issues, favoring one
or the other, are common. However, the differential in 1999 was one of the most
extreme in memory.
As value investors, we had a difficult time achieving positive returns in this
environment. Nonetheless, we remain confident that the market will swing back to
value stocks in time and that the Portfolio will deliver excellent long-term
investment results with below-market risk. We continue to focus on investments
in companies with high cash flow, strong competitive positions, solid balance
sheets and favorable earnings prospects, in the belief that company fundamentals
drive share prices over time. We seek to reduce risk and avoid surprises through
in-depth knowledge of the companies we own.
For the three years ended December 31, 1999, the Portfolio's average annual
total return of 3.0% compared with 13.1% for the Russell 2000. In the five years
ended December 31, 1999, the Portfolio provided an average annual total return
of 8.4%, compared with 16.7% for the Russell 2000. For the ten years ended
December 31, 1999, the Portfolio's average annual total return of 11.1%*
compared with 13.4% for the Russell 2000, and from its inception on August 1,
1988 through December 31, 1999 the Portfolio delivered an average annual total
return of 11.5%* versus 13.1% for the Russell 2000. Returns for the Portfolio
take into account expenses incurred by the Portfolio, but not separate account
charges imposed by the insurance company.
We continue to find many opportunities, across a range of industries, to
purchase quality small cap businesses with strong fundamentals that we consider
to be underpriced. New positions established in the fourth quarter include:
. Alliant Techsystems--a defense company which generates a high level of
free cash flow. Although the entire defense sector is down because of
the problems of some large contractors, Alliant is in stable areas of
defense spending and has a capable management team headed by a retired
admiral who formerly commanded the Atlantic fleet. Our average purchase
price was approximately $51 per share, or 7.3 times projected 2000
earnings of $7 per share. That price-earnings ratio is approximately
one-quarter of the price-earnings ratio of the large cap S&P 500 Index,
suggesting the significant values that exist in overlooked small caps
at this time.
- ----------------
* Based on results of the OCC Accumulation Trust and its predecessor. On
September 16, 1994, an investment company which had commenced operations on
August 1, 1988, called Quest for Value Accumulation Trust (the "Old Trust"),
was effectively divided into two investment funds--the Old Trust and the
present OCC Accumulation Trust (the "Present Trust")--at which time the
Present Trust commenced operations. The total net assets of the Small Cap
Portfolio immediately after the transaction were $139,812,573 in the Old
Trust and $8,129,274 in the Present Trust. For the period prior to September
16, 1994, the performance figures for the Small Cap Portfolio of the Present
Trust reflect the performance of the Small Cap Portfolio of the Old Trust.
2
<PAGE>
. Houghton Mifflin--the textbook publisher, is benefiting from a
combination of demographics and internal investments. Not only are
school enrollments increasing, but major state textbook adoptions are
scheduled over the next three years in the company's areas of strength,
including reading and languages. The company has been spending to
develop new textbooks and will begin to harvest the results of those
investments. In addition, it has made several acquisitions that are
beginning to contribute to profitability.
. Kaydon Corporation--designs, manufactures and sells custom-engineered
products for the construction, oil, gas, aerospace and forestry
industries. Earnings have suffered recently due to weakness in the
company's end markets, but appear to be on the verge of rebounding. We
believe the stock has the potential to rise significantly in the coming
year .
Other new positions during the fourth quarter included, Deltek Systems,
International Home Foods, Teleflex and UCAR International. Positions that
we sold in the quarter were Air Express International, M. A. Hanna,
Spartech and Tetra Technologies.
At December 31, 1999, the Portfolio's net assets were allocated 88.5% to
common stocks and 11.5% to short-term investments, essentially unchanged
from three months earlier. The Portfolio's five largest equity positions
at December 31, 1999 were RenaissanceRe Holdings, a Bermuda-based
insurance company, representing 4.4% of the Portfolio's net assets;
Cambrex, which provides products and services to the pharmaceutical and
biotechnology industries, 4.2% of net assets; Harman International
Industries, which designs and manufactures audio products for the
consumer, professional and original equipment markets, 3.7% of net
assets; First Health Group, a leading national health benefit management
company that serves employers with both group health and workers
compensation services, 3.8% of net assets; and Dentsply International,
which provides equipment and consumables to dentists, 3.6% of net assets.
Major industry positions were: insurance, representing 10.1% of the
Portfolio's net assets; healthcare, 8.5% of net assets; machinery and
engineering, 7.3% of net assets; computers and computer services, 7.1% of
net assets; and drugs and medical products, 7.0% of net assets.
3
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Shares Value
------ -----------
<S> <C> <C>
COMMON STOCK -- 88.3%
Aerospace -- 1.9%
45,500 L 3 Communications Holding Corp.*.. $ 1,893,937
32,800 Teleflex, Inc.*. 1,027,050
-----------
2,920,987
-----------
Business Services -- 1.0%
152,100 Staff Leasing, Inc.*............... 1,444,950
-----------
Chemicals -- 5.0%
186,000 Cambrex Corp....................... 6,405,375
69,700 McWhorter Technologies, Inc.*...... 1,115,200
-----------
7,520,575
-----------
Computers/Computer Services -- 7.1%
54,100 Analysts International Corp.*...... 676,250
75,800 Policy Management System Corp.*.... 1,937,638
89,100 Shared Medical System Corp......... 4,538,531
218,100 Wallace Computer Services, Inc..... 3,625,912
-----------
10,778,331
-----------
Conglomerates -- 0.9%
72,700 GP Strategies Corp.*............... 445,288
56,100 Ruddick Corp....................... 869,550
-----------
1,314,838
-----------
Data Processing -- 0.1%
8,100 Deltek Systems, Inc.*.............. 109,350
-----------
Drugs & Medical Products -- 7.0%
294,300 Amerisource Health Corp............ 4,469,681
233,300 Dentsply International, Inc........ 5,511,713
23,500 Vital Signs, Inc................... 537,562
-----------
10,518,956
-----------
Electronics -- 6.2%
145,700 Baldor Electronic, Co.............. 2,640,812
181,700 General Semiconductor, Inc.*....... 2,577,869
92,900 Pioneer Standard Electronics, Inc.. 1,341,244
23,700 Technitrol, Inc.................... 1,054,650
102,700 UCAR International, Inc.*.......... 1,829,344
-----------
9,443,919
-----------
Energy -- 3.5%
152,300 Cabot Oil & Gas Corp............... 2,446,319
115,900 St. Mary Land & Exploration Co..... 2,868,525
-----------
5,314,844
-----------
</TABLE>
4
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(continued) - Unaudited
<TABLE>
<CAPTION>
Shares Value
- ----------- -----------
<S> <C> <C>
COMMON STOCK -- (continued)
Food Services -- 6.0%
337,800 Del Monte Foods Co.*.................. $ 4,159,162
130,100 Earthgrains Co.*...................... 2,097,863
48,400 International Home Foods, Inc.*....... 840,950
77,500 Performance Food Group Co.*........... 1,889,062
-----------
8,987,037
-----------
Health & Hospitals -- 8.5%
49,100 American Medical Security Group, Inc.* 294,600
150,200 Corvel Corp.*......................... 3,529,700
206,100 First Health Group Corp.*............. 5,538,937
92,600 Regis Corp.*.......................... 1,747,825
58,800 Trigon Healthcare, Inc.*.............. 1,734,600
-----------
12,845,662
-----------
Industrial Materials -- 5.3%
394,900 MSC Industrial Direct Inc.*........... 5,232,425
88,600 SPS Technologies, Inc.*............... 2,829,662
-----------
8,062,087
-----------
Insurance -- 10.1%
92,100 Annuity & Life Re Holdings Ltd........ 2,406,112
26,000 E.W. Blanch Holdings, Inc............. 1,592,500
152,400 Horace Mann Educators Corp............ 2,990,850
101,145 Trenwick Group, Inc................... 1,713,143
161,900 RenaissanceRe Holdings Ltd............ 6,617,663
-----------
15,320,268
-----------
Machinery/Engineering -- 7.3%
92,255 Albany International Corp............. 1,429,951
57,100 Flowserve Corp........................ 970,700
86,700 Kaydon Corp........................... 2,324,644
175,300 Lindsay Manufacturing Co.............. 3,199,225
206,950 Tetra Tech, Inc.*..................... 3,181,856
-----------
11,106,376
-----------
Manufacturing -- 5.2%
357,100 BMC Industries, Inc................... 1,740,862
41,000 Carlisle Cos., Inc.................... 1,476,000
12,200 H.B. Fuller Co........................ 682,438
153,400 Precision Castparts Corp.............. 4,026,750
-----------
7,926,050
-----------
Power/Utility -- 0.6%
15,400 Eastern Enterprises................... 884,538
-----------
Printing/Publishing -- 1.1%
39,700 Houghton Mifflin Co................... 1,674,844
-----------
Retail -- 2.4%
158,000 Shopko Stores, Inc.................... 3,634,000
-----------
</TABLE>
5
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1999
(continued) - Unaudited
<TABLE>
<CAPTION>
Shares Value
- ------- --------------
<S> <C> <C>
COMMON STOCK -- (continued)
Technology -- 4.5%
17,900 Alliant Techsystems, Inc................ $ 1,115,394
101,100 Harman International Industries, Inc.... 5,674,238
------------
6,789,632
------------
Textiles/Apparel -- 3.8%
96,100 G & K Services, Inc..................... 3,111,238
317,100 Paxar Corp.*............................ 2,675,531
------------
5,786,769
------------
Transportation -- 0.8%
171,650 Interpool, Inc.......................... 1,276,647
------------
Total Common Stock (cost - $136,813,766) 133,660,660
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000)
- ------
<S> <C> <C>
U.S. GOVERNMENT AGENCY NOTES -- 11.5%
$17,365 Federal Home Loan Bank Discount Notes,
1.50%, 1/3/00 (cost - $17,363,553)...... 17,363,553
------------
Total Investments (cost - $154,177,319).. 99.8% 151,024,213
Other assets less liabilities............ 0.2 265,666
----- ------------
Net Assets............................... 100.0% $151,289,879
===== ============
</TABLE>
- --------------
* Non-income producing security
See accompanying notes to financial statements.
6
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value (cost - $154,177,319)......... $151,024,213
Cash................................................ 4,783
Receivable for investments sold..................... 654,611
Receivable for shares of beneficial interest sold... 624,548
Dividends receivable................................ 84,221
Prepaid expenses.................................... 658
------------
Total Assets....................................... 152,393,034
------------
Liabilities:
Payable for investments purchased................... 768,753
Payable for shares of beneficial interest redeemed.. 256,855
Investment advisory fee payable..................... 19,427
Accrued expenses.................................... 58,120
------------
Total Liabilities.................................. 1,103,155
------------
Net Assets......................................... $151,289,879
============
Composition of Net Assets:
Par value ($.01 per share).......................... $ 67,188
Paid-in-capital in excess of par.................... 159,417,037
Accumulated net investment income................... 917,410
Accumulated net realized loss on investments........ (5,958,650)
Net unrealized depreciation on investments.......... (3,153,106)
------------
Net Assets......................................... $151,289,879
============
Shares outstanding.................................. 6,718,771
---------
Net asset value per share........................... $22.52
======
</TABLE>
7
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended December 31, 1999 - Unaudited
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Dividends......................................................... $ 1,255,696
Interest.......................................................... 998,014
-----------
Total investment income......................................... 2,253,710
-----------
Expenses:
Investment advisory fees.......................................... 1,206,779
Custodian fees.................................................... 44,191
Trustees' fees and expenses....................................... 19,304
Reports to shareholders........................................... 18,992
Transfer agent fees............................................... 13,916
Audit and tax service fees........................................ 13,893
Legal fees........................................................ 2,609
Miscellaneous..................................................... 19,267
-----------
Total expenses.................................................. 1,338,951
Less: expense offset............................................ (2,660)
-----------
Net expenses................................................... 1,336,291
-----------
Net investment income.......................................... 917,419
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments................................... (4,521,338)
Net change in unrealized appreciation/depreciation on investments.. 723,406
-----------
Net realized and unrealized loss on investments................... (3,797,932)
-----------
Net decrease in net assets resulting from operations............... $(2,880,513)
===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 (Unaudited) 1998
----------------------
<S> <C> <C>
Operations:
Net investment income....................................................... $ 917,419 $ 978,619
Net realized loss on investments............................................ (4,521,338) (1,428,318)
Net change in unrealized appreciation/depreciation on investments........... 723,406 (13,507,408)
------------ ------------
Net decrease in net assets resulting from operations....................... (2,880,513) (13,957,107)
------------ ------------
Dividends and Distributions to Shareholders from:
Net investment income....................................................... (978,624) (397,659)
Net realized gains.......................................................... -- (4,342,119)
------------ ------------
Total dividends and distributions to shareholders.......................... (978,624) (4,739,778)
------------ ------------
Share Transactions:
Net proceeds from the sale of shares........................................ 45,603,776 75,017,090
Reinvestment of dividends and distributions................................. 978,624 4,739,778
Cost of shares redeemed..................................................... (46,939,318) (16,118,555)
------------ ------------
Net increase (decrease) in net assets from share transactions.............. (356,918) 63,638,313
------------ ------------
Total increase (decrease) in net assets.................................. (4,216,055) 44,941,428
Net Assets:
Beginning of year........................................................... 155,505,934 110,564,506
------------ ------------
End of year (including undistributed net investment income of $917,409 and
$978,615, respectively).................................................... $151,289,879 $155,505,934
============ ============
Shares Issued and Redeemed:
Issued...................................................................... 2,052,691 3,039,039
Issued in reinvestment of dividends and distributions....................... 47,049 177,254
Redeemed.................................................................... (2,112,375) (677,160)
------------ ------------
Net increase (decrease).................................................... (12,635) 2,539,133
============ ============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year
(1999 Unaudited):
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1999 1998 1997 1996 1995
------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................ $23.10 $26.37 $22.61 $19.91 $17.38
Income from Investment Operations:
Net investment income.................................... 0.14 0.14 0.08 0.14 0.26
Net realized and unrealized gain (loss) on investments... (0.57) (2.38) 4.73 3.45 2.37
------ ------ ------ ------ ------
Total income (loss) from investment operations.......... (0.43) (2.24) 4.81 3.59 2.63
------ ------ ------ ------ ------
Dividends and Distributions to Shareholders from:
Net investment income.................................... (0.15) (0.09) (0.13) (0.25) (0.05)
Net realized gains....................................... -- (0.94) (0.92) (0.64) (0.05)
------ ------ ------ ------ ------
Total dividends and distributions to shareholders....... (0.15) (1.03) (1.05) (0.89) (0.10)
------ ------ ------ ------ ------
Net asset value, end of year.............................. $22.52 $23.10 $26.37 $22.61 $19.91
====== ====== ====== ====== ======
Total Return (1). (1.8)% (9.0)% 22.2% 18.7% 15.2%
===== ===== ===== ===== =====
Ratios/Supplemental data:
Net assets, end of year (000's)....................... $151,289 $155,506 $110,565 $34,257 $16,004
Ratio of expenses to average net assets (2)........... 0.89% 0.88% 0.97% 0.93%(3) 0.74%(3)
Ratio of net investment income to average net assets.. 0.61% 0.72% 0.64% 1.03%(3) 1.75%(3)
Portfolio Turnover.................................... 99% 51% 68% 50% 69%
</TABLE>
(1) Assumes reinvestment of all dividends and distributions.
(2) For fiscal years ended after September 1, 1995, ratios are inclusive of
expenses offset by earnings credits from custodian bank (See 1G in Notes to
Financial Statements).
(3) During the fiscal years indicated above, the Adviser waived a portion or
all of its fees and assumed a portion of the Portfolio's expenses. If such
waivers and assumptions had not been in effect, the ratios of 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, and 0.99% and 1.50%, respectively, for the year ended
December 31, 1995.
10
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 - Unaudited
(1) Organization and Significant Accounting Policies
OCC Accumulation Trust ( the "Trust") was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of six classes of shares of
beneficial interest at $.01 par value. The Trust is comprised of six portfolios:
the Equity Portfolio, the Small Cap Portfolio (the "Portfolio"), the Global
Equity Portfolio, the Managed Portfolio, the U.S. Government Income Portfolio
and the 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 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. 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 as a tax return of capital.
11
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(concluded) - Unaudited
(1) Organization and Significant Accounting Policies--(concluded)
(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) Expense Offset
The Portfolio benefits from an expense offset arrangement with its custodian
bank whereby uninvested cash balanaces earn credits which reduce monthly
custodian fees. Had these cash balances been invested in income producing
securities, they would have generated income for the Portfolio.
(H) Trustees' Retirement Plan
The trustees have adopted a Retirement Plan (the "Plan") effective January 1,
1999. The Plan 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. For the year ended December 31, 1999, the
Portfolio accrued $14,914 in connection with the Plan.
(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 a 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 any expense offset) on an annual basis.
(3) Investments in Securities
For federal income tax purposes, the cost of securities owned at December 31,
1999 was $154,177,319. Accordingly, net unrealized depreciation of investments
of $3,153,106 was comprised of gross appreciation of $13,775,516 for those
investments having an excess of value over cost and gross depreciation of
$16,928,522 for those investments having an excess of cost over value.
For the year ended December 31, 1999, purchases and sales of investment
securities, other than short-term securities, aggregated $137,433,931 and
$135,775,762, respectively.
At December 31, 1999, the Portfolio had a capital loss carryforward of
5,803,721 ($1,282,383 of which will expire in 2006 and $4,521,318 which will
expire in 2007) available as a reduction, to the extend provided in the
regulations, of any future net realized capital gains realized before the end
of fiscal year 2007. To the extent that these losses are used to offset future
realized capital gains , such gains will not be distributed.
(4) Acquisition of Investment Adviser
On October 31, 1999, PIMCO Advisors Holdings L.P. ("PAH"), its operating
subsidiary, PIMCO Advisors L.P. ("PIMCO Advisors"), and Allianz AG ("Allianz")
announced that they have reached a definitive agreement for Allianz, a German
insurance company , to acquire majority ownership of PIMCO Advisors, including
all of the interests held by PAH (the "Allianz Transaction"). For the
Portfolio, the change of control as a result of the
12
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(concluded) - Unaudited
(4) Acquisition of Investment Adviser--(concluded)
consummation of the Allianz Transaction (expected to close by the end of the
first quarter of 2000) will result in the automatic termination of the current
investment advisory agreement with OpCap Advisors. The trustees have approved a
new agreement with OpCap Advisors to become effective upon consummation of the
Allianz Transaction. The new agreement will be submitted for approval by the
stockholders of the Portfolio.
13
<PAGE>
For investors who want more information about the Portfolios, the following
documents are available free upon request:
Annual/Semi-annual Reports: Additional information about the Portfolios'
investments is available in the Portfolios' annual and semi-annual reports to
shareholders. In each Portfolio's annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Portfolio's performance during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Portfolios and is incorporated into this prospectus by
reference.
The SAI and the Portfolios' annual and semi-annual reports are available without
charge upon request to your broker or by calling the Portfolios at
1-800-700-8258.
You can review and copy the Portfolios' reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. You can get text-only copies:
Upon payment of a duplicating fee, by writing to or calling the Public Reference
Room of the Commission, Washington, D.C. 20549-6009
Telephone: 1-800-SEC-0330
Free from the Commission's Internet website at http://www.sec.gov.
(Investment Company Act file no. 811-8512)
OCC Accumulation Trust
Equity Portfolio
Blended Equity Portfolio
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Target Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Innovation Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
<PAGE>
Statement of Additional Information
OCC Accumulation Trust
Equity Portfolio
Blended Equity Portfolio
Large Cap Growth Portfolio
Small Cap Growth Portfolio
Target Portfolio
Mid Cap Portfolio
Small Cap Portfolio
Innovation Portfolio
Global Equity Portfolio
Managed Portfolio
Balanced Portfolio
U.S. Government Income Portfolio
1345 Avenue of the Americas
New York, NY 10105
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated _________, 2000 (the
"Prospectus") of OCC Accumulation Trust (the "Fund"). Contract owners can obtain
copies of the Fund Prospectus by written request to the life insurance company
who issued the Contract at the address delineated in the Variable Account
Prospectus or by calling the life insurance company who issued the Contract at
the telephone number listed in the Variable Account Prospectus.
The date of this Additional Statement is ___________, 2000.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment of Assets..........................................
Investment Restrictions.......................................
Trustees and Officers.........................................
Control Persons...............................................
Investment Management and Other Services......................
Determination of Net Asset Value..............................
Dividends, Distribution and Taxes.............................
Portfolio Yield and Total Return Information..................
Additional Information........................................
Financial Statements.......................................... A-1
</TABLE>
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. Some obligations issued or guaranteed by U.S. government
agencies or Instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by the
full faith and credit of the United States, the owner of the securities must
look principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the agency
or instrumentality does not meet its commitment.
Collateralized Mortgage Obligations. In addition to securities issued by
the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae and the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type of
mortgage-backed security is the "collateralized mortgage obligation", which is
secured by groups of individual mortgages but is similar to a conventional bond
where the investor looks only to the issuer for payment of principal and
interest. Although the obligations are recourse obligations to the issuer, the
issuer typically has no significant assets, other than assets pledged as
collateral for the obligations, and the market value of the collateral, which is
sensitive to interest rate movements, may affect the market value of the
obligations. A public market for a particular collateralized mortgage obligation
may or may not develop and thus, there can be no guarantee of liquidity of an
investment in such
3
<PAGE>
obligations. Investments will only be made in collateralized mortgage
obligations which are of high quality, as determined by the Board of Trustees.
Commercial Mortgage-Backed Securities ("CMBS"). Each of the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may invest
in CMBS. CMBS are generally multi-class or pass-through securities backed by a
mortgage loan or a pool of mortgage loans secured by commercial property, such
as industrial and warehouse properties, office buildings, retail space and
shopping malls, multifamily properties and cooperative apartments. The
commercial mortgage loans that underlie CMBS have certain distinct
characteristics. Commercial mortgage loans are generally not amortizing or not
fully amortizing. That is, at their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid through the attainment of an
additional loan or sale of the property. Unlike most single family residential
mortgages, commercial real estate property loans often contain provisions which
substantially reduce the likelihood that such securities will be prepaid. The
provisions generally impose significant prepayment penalties on loans and, in
some cases there may be prohibitions on principal prepayments for several years
following origination.
Stripped Mortgage-Backed Securities ("SMBs"). Each of the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may invest
in SMBs. SMBs are usually structured with two classes that receive specified
proportions of the monthly interest and principal payments from a pool of
mortgage securities. One class may receive all of the interest payments while
the other class may receive all of the principal payments. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. The market for
SMBs is not as fully developed as other markets; SMBs therefore may be illiquid.
4
<PAGE>
Asset-Backed Securities. Each of the Blended Equity, Large Cap Growth,
Small Cap Growth, Target and Innovation Portfolios may invest in asset-backed
securities. Asset-backed securities may be structured as undivided fractional
ownership interests in an underlying pool of assets or as debt instruments
issued by a special purpose entity organized solely for the purpose of owning
these assets and issuing such debt. Examples of assets used to back asset-backed
securities include motor vehicle installment sales contracts, installment loans
secured by motor vehicles, receivables representing amounts owed by businesses
to vendors or other trade creditors and receivables from revolving credit
(credit card) agreements.
Asset-backed securities present certain risks. Some asset-backed securities
may be subject to the prepayment and extension risks. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Trade receivables may also be unsecured.
Most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing these receivables. Therefore, it is
possible that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
5
<PAGE>
Other types of asset-backed securities will be subject to the risks
associated with the underlying assets. If a letter of credit or other form of
credit enhancement is exhausted or otherwise unavailable, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying assets are not realized.
Information on Time Deposits and Variable Rate Notes. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus.
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing basis,
OpCap Advisors (the "Manager") will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest
6
<PAGE>
on demand, including a situation in which all holders of such notes made demand
simultaneously. The Portfolios will not invest more than 5% of their total
assets in variable rate notes. Variable rate notes are subject to the
Portfolios' investment restrictions on illiquid securities unless such notes can
be put back to the issuer on demand within seven days.
Insured Bank Obligations. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits of federally insured banks and savings and loan
associations (collectively referred to as "banks") up to $100,000. The Portfolio
may, within the limits set forth in the Prospectus, purchase bank obligations
which are fully insured as to principal by the FDIC. Currently, to remain fully
insured as to principal, these investments must be limited to $100,000 per bank;
if the principal amount and accrued interest together exceed $100,000, the
excess principal amount and accrued interest will not be insured. Insured bank
obligations may have limited marketability. Unless the Board of Trustees
determines that a readily available market exists for such obligations, a
Portfolio will treat such obligations as subject to the 15% limit for illiquid
investments set forth in the Prospectus for each Portfolio unless such
obligations are payable at principal amount plus accrued interest on demand or
within seven days after demand.
Lower Rated Bonds. Each Portfolio (except the Blended Equity, Large Cap
Growth, Small Cap Growth, Target and Innovation Portfolios) may invest up to 5%
of its assets in bonds rated below Baa3 by Moody's Investors Service, Inc.
("Moody's") or BBB- by Standard & Poor's Corporation ("S&P"), Fitch Investors
Service, Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff"). These securities are
commonly known as "junk bonds." The Balanced Portfolio may invest up to 25% of
its assets in junk bonds. Securities rated less than Baa by Moody's or BBB- by
S&P are classified as non-investment grade securities and are considered
speculative by those rating agencies. It is the Fund's policy not to rely
exclusively on ratings issued by credit
7
<PAGE>
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
8
<PAGE>
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Portfolio forgoes principal and interest paid
on the securities. The Portfolio is compensated by the difference between the
current sale price and the lower forward price for the future purchase (often
referred to as the "drop") as well as interest earned on the cash proceeds of
the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll files
for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds of the
transaction may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to repurchase
the securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
Portfolio Securities Loans. The Fund on behalf of the Blended Equity, Large
Cap Growth, Small Cap Growth, Target and Innovation Portfolios may lend
portfolio securities to unaffiliated brokers, dealers and financial
institutions, provided that the borrower must deposit with the Portfolio
collateral, in the form of cash, equal to at least 100% of the market value of
the loaned securities, marked to market daily. While the securities are on loan,
the borrower must pay the Portfolio any income accruing thereon. The borrower
also compensates the Portfolio by paying a loan fee or by allowing the Portfolio
to retain
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any income earned on the investment of the cash collateral in portfolio
securities. Although investment of the collateral may increase the Portfolio's
potential return, it will also increase the Portfolio's potential for loss.
A Portfolio normally will lend securities subject to termination by the
Portfolio in the normal settlement time or by the borrower on one day's notice.
The borrower must return the securities, and the Portfolio must return the
collateral, when the loan is terminated. Any gain or loss in the market price of
the borrowed securities that occurs during the term of the loan is borne by the
Portfolio and its shareholders, except that gains cannot be realized if the
borrower defaults on its obligation to return the borrowed securities. The
Portfolio may pay reasonable finders', administrative and custodial fees in
connection with a loan of securities.
Repurchase Agreements. The Fund on behalf of a Portfolio may enter into
repurchase agreements with broker-dealers, member banks of the Federal Reserve
System and other financial institutions. Repurchase agreements are arrangements
under which a Portfolio purchases securities and the seller agrees to repurchase
the securities within a specific time and at a specific price. The repurchase
price is generally higher than the Portfolio's purchase price, with the
difference being income to the Portfolio. The counterparty's obligations under
the repurchase agreement are collateralized with U.S. government securities with
a market value of not less than 100% of the counterparty's obligations, valued
daily. Collateral is held by the Fund's custodian for the benefit of the
Portfolio.
Repurchase agreements afford a Portfolio an opportunity to earn income on
temporarily available cash at low risk. If bankruptcy or insolvency proceedings
are commenced with respect to the counterparty
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before repurchase of the security under a repurchase agreement, a Portfolio may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If the
court characterizes the transaction as a loan and the Portfolio has not
perfected a security interest in the security, the Portfolio may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, the Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
To minimize the risk of counterparty default, the investment manager
reviews and monitors the creditworthiness of any institution which enters into a
repurchase agreement with the Fund.
Reverse Repurchase Agreements. The Fund on behalf of the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios may enter
into reverse repurchase agreements with broker-dealers, member banks of the
Federal Reserve System and other financial institutions. Reverse repurchase
agreements are arrangements under which a Portfolio sells securities and agrees
to repurchase the securities within a specific time and at a specified price.
The repurchase price is generally higher than the Portfolio's sale price, with
the difference representing the cost to the Portfolio of borrowing the cash
received on the sale. Reverse repurchase agreements involve the risk that the
market value of the securities which the Portfolio is obligated to repurchase
may decline below the repurchase price or that the counterparty may default on
its obligation to resell the securities. Repurchase agreements are considered to
be a form of, and are subject to the Fund's restrictions on, borrowing.
Hedging. As stated in the Prospectus, the Blended Equity, Large Cap
Growth, Small Cap Growth, Target, Innovation, Global Equity, Managed, Balanced,
Mid Cap, Small Cap and Equity Portfolios may
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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 Blended Equity, Large Cap Growth, Small
Cap Growth, Target, Innovation and Global Equity Portfolios may purchase and
sell futures contracts that are currently traded, or may in the future be
traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase, the sum of
initial margin deposits on futures
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and premiums paid on futures options would exceed 5% of the Portfolio's total
assets. This limitation is not a fundamental policy.
Information on Puts and Calls. The Blended Equity, Large Cap Growth, Small
Cap Growth, Target, Mid Cap, Balanced, Managed, Small Cap, Innovation and Equity
Portfolios may write calls on individual securities. The Blended Equity, Large
Cap Growth, Small Cap Growth, Target, Mid Cap, Managed, Innovation, Balanced and
Global Equity Portfolios are authorized to write covered put and call options
and purchase put and call options on the securities in which they may invest.
When a portfolio writes a call, it receives a premium and agrees to sell the
callable securities to a purchaser of a corresponding call during the call
period (usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the underlying securities) regardless of market
price changes during the call period. If the call is exercised, the portfolio
forgoes any possible profit from an increase in market price over the exercise
price. A portfolio may, in the case of listed options, purchase calls in
"closing purchase transactions" to terminate a call obligation. A profit or loss
will be realized, depending upon whether the net of the amount of option
transaction costs and the premium received on the call written is more or less
than the price of the call subsequently purchased. A profit may be realized if
the call lapses unexercised, because the portfolio retains the underlying
security and the premium received. If, due to a lack of a market, a portfolio
could not effect a closing purchase transaction, it would have to hold the
callable securities until the call lapsed or was exercised. The Fund's
Custodian, or a securities depository acting for the Custodian, will act as the
portfolio's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC") in connection with listed calls, as to the securities on
which the portfolio has written calls, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the portfolio's
entering into a closing purchase transaction.
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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.
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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
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terminates upon the earlier of the expiration of the put, or the consummation by
the portfolio of a closing purchase transaction by purchasing a put of the same
series as that previously sold. Once a portfolio has been assigned an exercise
notice, it is thereafter not allowed to effect a closing purchase transaction.
A portfolio may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put to it. Furthermore, effecting such a closing purchase transaction
will permit the portfolio to write another put option to the extent that the
exercise price thereof is secured by the deposited assets, or to utilize the
proceeds from the sale of such assets for other investments by the portfolio.
The portfolio will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a listed
option (or on a certain date if it is an OTC option). Buying a put on securities
or futures held by it permits a portfolio to attempt to protect itself during
the put period against a decline in the value of the underlying investment below
the exercise price. In the event of a decline in the market, the portfolio could
exercise, or sell the put option at a profit that would offset some or all of
its loss on the portfolio securities. If the market price of the underlying
investment is above the exercise price and as a result, the put is not
exercised, the put will become worthless at its expiration date and the
purchasing portfolio will lose the premium paid and the right to sell the
underlying securities; the put may, however, be sold prior to expiration
(whether or not at a profit). Purchasing a put on futures or securities not held
by it permits a portfolio to protect its securities holdings against a decline
in the market to the extent that the prices of the future or securities
underlying the put move in a similar pattern to the prices of a portfolio's
securities.
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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 Blended Equity, Large Cap Growth, Small Cap Growth,
Target, Global Equity, Balanced, Managed, Mid Cap, Small Cap, Innovation and
Equity Portfolios may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid)
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put) at a specified exercise price
at any time during the term of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option is accompanied by delivery of the accumulated balance in the writer's
futures margin account, which represents the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
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The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is similar
in some respects to the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the underlying
securities, it may or may not be less risky than ownership of the futures
contract or underlying securities. As with the purchase of futures contracts,
when a Portfolio is not fully invested it may purchase a call option on a
futures contract to hedge against an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's securities holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options may
to some extent be reduced or increased by changes in the value of its
securities.
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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
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thereby insure that the use of such futures is unleveraged. At any time prior to
the expiration of the futures contract, the Portfolio may elect to close the
position by taking an opposite position which will operate to terminate the
Portfolio's position in the futures contract.
There are several risks in connection with the use of stock index futures
in the Portfolio as a hedging device. One risk arises because of the imperfect
correlation between the price of the stock index future and the price of the
securities which are the subject of the hedge. This risk of imperfect
correlation increases as the composition of the Portfolio's holdings diverges
from the securities included in the applicable stock index. The price of the
stock index future may move more than or less than the price of the securities
being hedged. If the price of the stock index future moves less than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective, but, if the price of the securities being hedged has moved in
an unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has moved in
a favorable direction this advantage will be partially offset by the future. If
the price of the futures moves more than the price of the stock the Portfolio
will experience a loss or a gain on the future which will not be completely
offset by movement in the price of the securities which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the stock index futures,
the Portfolio may buy or sell stock index futures in a greater dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the prices of such securities has been greater than the historical
volatility of the index. Conversely, the Portfolio may buy or sell fewer stock
index futures contracts if the historical volatility of the price of the
securities being hedged is less than the historical volatility of the stock
index. It is possible that where the Portfolio has sold futures to hedge its
portfolio against a decline in the market, the market may advance and the
Portfolio's securities may decline. If this occurred, the Portfolio would lose
money on the
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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
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futures markets. Moreover, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the market. Such increased
participation may also cause temporary price distortions. Due to the possibility
of price distortion in the futures market and because of the imperfect
correlation between movements in the stock index and movements in the price of
stock index futures, the value of stock index futures contracts as a hedging
device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. Positions in stock index futures may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolios intend to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, as with stock options, there is no assurance that a liquid secondary
market or an exchange or board of trade will exist for any particular contract
or at any particular time. In such event it may not be possible to close a
futures position and in the event of adverse price movements, the Portfolios
would continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge a portfolio's
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of securities
will, in fact, correlate with the price movements in the futures contract and
thus provide an offset to losses on a futures contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
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Regulatory Aspects of Hedging Instruments. Transactions in options by a
portfolio are subject to limitations established (and changed from time to time)
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which a portfolio may write or hold may be affected by options written or held
by other investment companies and discretionary accounts of the Manager,
including other investment companies having the same or an affiliated investment
adviser. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account or
accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the market
value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as to
its positions in futures and options thereon under a rule ("CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA"), which excludes the Fund and each Portfolio from
registration with the CFTC as a "commodity pool operator" (as defined under the
CEA). Under those restrictions, a portfolio may not enter into any financial
futures or options contract unless such transactions are for bona fide hedging
purposes, or for other purposes only if the aggregate initial margins and
premiums required to establish such non-hedging positions would not exceed 5% of
the liquidation value of its assets.
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Each Portfolio may use futures and options thereon for bona fide hedging or for
other purposes within the meaning and intent of the applicable provisions of the
CEA.
Tax Aspects of Hedging Instruments. Each Portfolio in the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code. One
of the tests for such qualification is that at least 90% of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of securities. In connection with the 90% test, amendments to the
Internal Revenue Code specify that income from hedging options, futures and
other gains derived from hedging investments in securities is qualifying income
under the 90% test.
Regulated futures contracts, options on broad-based stock indices, options
on stock index futures, certain other futures contracts and options thereon
(collectively, "Section 1256 contracts") held by a portfolio at the end of each
taxable year may be required to be "marked-to-market" for federal income tax
purposes (that is, treated as having been sold at that time at market value).
Any unrealized gain or loss taxed pursuant to this rule will be added to
realized gains or losses recognized on Section 1256 contracts sold by a
portfolio during the year, and the resulting gain or loss will be deemed to
consist of 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A portfolio may elect to exclude certain transactions from the
mark-to-market rule although doing so may have the effect of increasing the
relative proportion of short-term capital gain (taxable as ordinary income)
and/or increasing the amount of dividends that must be distributed annually to
meet income distribution requirements, currently at 98%, to avoid payment of
federal excise tax.
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
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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
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decline or for other reasons, it will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the securities purchased.
Investment in Foreign Securities. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Blended Equity, Large Cap Growth,
Small Cap Growth, Target, Balanced, Mid Cap, Small Cap, Innovation and Managed
Portfolios may purchase foreign securities provided that they are listed on a
domestic or foreign securities exchange or represented by American depository
receipts listed on a domestic securities exchange or traded in a domestic or
foreign over-the-counter market. Except for the Blended Equity, Large Cap
Growth, Small Cap Growth, Target and Innovation Portfolios, there is no limit on
the amount of such foreign securities that a Portfolio might acquire. Each of
the Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios may invest up to 15% of its assets in foreign securities.
The Portfolios will hold foreign currency in connection with the purchase
or sale of securities on a foreign securities exchange. To the extent that
foreign currency is so held, there may be a risk due to foreign currency
exchange rate fluctuations. Such foreign currency and foreign securities will be
held by the Fund's custodian bank, or by a foreign branch of a U.S. bank, acting
as subcustodian, on behalf of the Portfolio. The custodian bank will hold such
foreign securities pursuant to such arrangements as are permitted by applicable
foreign and domestic law and custom.
Investments in foreign companies involve certain considerations which are
not typically associated with investing in domestic companies. An investment may
be affected by changes in currency rates and in exchange control regulations
(e.g. currency blockage). The Portfolios may bear a transaction charge in
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<PAGE>
connection with the exchange of currency. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies are generally not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Most foreign stock markets have substantially less volume than the
New York Stock Exchange and securities of some foreign companies are less liquid
and more volatile than securities of comparable domestic companies. There is
generally less government regulation of foreign stock exchanges, brokers, and
listed companies than there is in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could adversely affect investment in securities of issuers
located in those countries. Individual foreign economies may differ favorable or
unfavorably from the United States economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. If it should become
necessary, the Portfolios would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a United States issuer.
Investments in 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.
27
<PAGE>
Foreign Currency Transactions. The Blended Equity, Large Cap Growth, Small
Cap Growth, Target, Global Equity, Balanced, Equity, Mid Cap, Small Cap,
Innovation 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 Blended Equity, Large Cap Growth, Small Cap Growth, Target, Global
Equity, Balanced, Mid Cap, Equity, Small Cap, Innovation and Managed Portfolios
intend to conduct their foreign currency exchange transactions on a spot basis
(i.e., cash) at the spot rate prevailing in the foreign currency exchange market
or through entering into forward foreign currency contracts ("forward
contracts") to purchase or sell foreign currencies. Such Portfolios may enter
into forward contracts in order to lock in the U.S. dollar amount they must pay
or expect to receive for a security they have agreed to buy or sell or with
respect to their positions when the Portfolios believe that a particular
currency may change unfavorably compared to the U.S. dollar. A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large, commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate
28
<PAGE>
accounts decline, additional cash or securities will be placed in the accounts
on a daily basis so that the value of the accounts will equal the amount of the
Portfolios' commitments with respect to such forward contracts. If, rather than
cash, portfolio securities are used to secure such a forward contract, on the
settlement of the forward contract for delivery by the Portfolios of a foreign
currency, the Portfolios may either sell the portfolio security and make
delivery of the foreign currency, or they may retain the security and terminate
their contractual obligation to deliver the foreign currency by purchasing an
"offsetting" contract obligating them to purchase, on the same settlement date,
the same amount of foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio
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<PAGE>
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.
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<PAGE>
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).
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.
31
<PAGE>
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.
Investing in Small and Medium Capitalization Companies. Investing in
the equity securities of small and medium capitalization companies involve
additional risks compared to investing in large capitalization companies.
Compared to large companies, these companies may:
. Have more limited product lines and capital resources
. Have less established markets for their products
. Have earnings that are more sensitive to changes in the economy,
competition and technology
. Be more dependent upon key members of management.
The market value of the common stock of small and medium capitalization
companies may:
. Be more volatile, particularly in response to company announcements or
industry events
. Have less active trading markets
. Be harder to sell at the time and prices that the adviser considers
appropriate.
When-Issued, Delayed Delivery and Forward Commitment Securities. The
Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios may purchase or sell securities in a transaction where the payment
obligation and interest rate on the securities are fixed at the time the
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<PAGE>
Portfolio enters into the commitment, but interest will not accrue to the
Portfolio until delivery of and payment for the securities. Securities purchased
or sold in this way, alternatively referred to as 'when issued', 'delayed
delivery' or 'forward commitment' securities, may have a market value on
delivery which is less than the amount paid by the Portfolio. Although the
Portfolio will only make commitments to purchase securities on a forward
commitment basis with the intention of actually acquiring the securities, the
Portfolio may sell the securities before the settlement date if deemed advisable
by the adviser. Unless the Portfolio has entered into an offsetting agreement to
sell the securities purchased on a forward commitment basis, it will maintain a
segregated account consisting of cash or liquid securities with a value equal to
the Portfolio's purchase commitment. The assets in this account must be adjusted
daily to compensate for any decline in the value of the segregated assets.
Investment in Other Investment Companies. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in an
investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively, except that these limits do not apply if a portfolio is acquiring
33
<PAGE>
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.
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
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<PAGE>
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. Except for the Small Cap Growth and Innovation Portfolios, invest more
than 5 percent of the value of its total assets in securities of issuers having
a record, together with predecessors, of less than three years of continuous
operation.
35
<PAGE>
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.
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<PAGE>
8. Pledge its assets or assign or otherwise encumber them in excess of 10%
of its net assets (taken at market value at the time of pledging) and then only
to secure borrowings effected within the limitations set forth in the
Prospectus.
9. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
10. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of purchases of portfolio securities) or sell
securities short except "against the box." (Collateral arrangements in
connection with transactions in options and futures are not deemed to be margin
transactions.)
11. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
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.
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<PAGE>
14. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
15. Invest in physical commodities or physical commodity contracts.
However, the Fund may buy and sell hedging instruments to the extent specified
in the Prospectus or this Additional Statement from time to time. The Fund can
also buy and sell options, futures, securities or other instruments backed by,
or the investment return from which is linked to, changes in the price of
physical commodities.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting from
market fluctuations or other changes in the amount of total assets does not
require elimination of any security from a Portfolio.
Restrictions Applicable to the Equity, Mid Cap, Managed, Global Equity,
Balanced and Small Cap Portfolios Only. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
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
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<PAGE>
result of a corporate reorganization or similar transaction affecting readily
marketable securities already held by the Equity, Mid Cap, Managed, Global
Equity, Balanced and/or Small Cap Portfolios; however, each Portfolio will
attempt to dispose in an orderly fashion of any securities received under these
circumstances to the extent that such securities, together with other
unmarketable securities, exceed 15% of that Portfolio's total assets.
Restrictions Applicable to the Blended Equity, Large Cap Growth, Small Cap
Growth, Target and Innovation Portfolios Only. Each of the above Portfolios may
not:
1. Invest more than 15 percent of its total assets in securities the
disposition of which is restricted under the federal securities laws (excluding
securities offered and sold under Rule 144A of the Securities Act of 1933 (the
"1933 Act") and commercial paper offered and sold under Section 4(2) of the 1933
Act), OTC Options and initial offerings and private offerings of SMBs.
2. Engage in short sales of securities or maintain a short position for the
account of a Portfolio unless the Portfolio owns an equal amount of the
securities or owns the right to acquire securities of the same issue as the
securities sold short without the payment of further consideration.
3. With respect to 75% of a Portfolio's total assets, invest more than 5%
of the assets in the securities of any one issuer (This limitation does not
apply to bank certificates of deposit or obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities.).
4. Write (sell) or purchase options except that each Portfolio may (a)
write covered call options or covered put options on securities that it is
eligible to purchase and enter into closing purchase
39
<PAGE>
transactions for those options, and (b) purchase put and call options on
securities indexes, options on foreign currencies, options on futures contracts,
and options on other financial instruments or one or more groups of instruments,
provided that the premiums paid by each Portfolio on all outstanding options it
has purchased do not exceed 5% of its total assets. Each Portfolio may enter
into closing sale transactions for options it purchased.
TRUSTEES AND OFFICERS
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of both OpCap Advisors and PIMCO
Advisors. Although the Fund will not normally hold annual meetings of its
shareholders, it may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to remove a Trustee
or to take other action described in the Fund's Declaration of Trust. The
trustees and officers of the Fund, and their principal occupations during the
past five years, are set forth below. Trustees who are "interested persons", as
defined in the 1940 Act, are denoted by an asterisk. The address of each is 1345
Avenue of the Americas, New York, New York 10105, except as noted. As of March
31, 1999, the trustees and officers of the Fund as a group owned none of its
outstanding shares.
Joseph M. La Motta, Chairman of the Board of Trustees and President*
Age: 66
Chairman Emeritus of Oppenheimer Capital, a registered investment adviser;
Chairman of the Board and President of OCC Cash Reserves, Inc., an open-end
investment company; Chairman of the Board of Oppenheimer Capital Trust Company,
a New York trust company.
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<PAGE>
Paul Y. Clinton, Trustee
39 Blossom Avenue
Osterville, Massachusetts 02655
Age: 67
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Convertible Securities
Fund, Oppenheimer Mid Cap Fund, and OCC Cash Reserves, Inc.; Trustee of OCC
Accumulation Trust and Oppenheimer Quest for Value Funds, each of which is an
open-end investment company.
Thomas W. Courtney, C.F.A., Trustee
833 Wyndemere Way
Naples, Florida 34105
Age: 65
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund; former President of Federated
Investment Counseling, Inc.; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term New
York Municipals and Bond Fund Series, Oppenheimer Convertible Securities Fund,
Oppenheimer Mid Cap Fund, OCC Cash Reserves, Inc., and Trustee of Oppenheimer
Quest for Value Funds, Cash Assets Trust, Hawaiian Tax-Free Trust and Tax Free
Trust of Arizona, each of which is an open-end investment company; former
Director of The Financial Analysts Federation.
Lacy B. Herrmann, Trustee
380 Madison Avenue, Suite 2300
New York, New York 10017
Age: 69
Chairman of the Board and Chief Executive Officer of Aquila Management
Corporation (since 1984) and Chairman of the Board of Trustees and President of
seven single state tax exempt bond funds, five money market funds and two equity
funds in the Aquila fund complex; Vice President, Director, Secretary, and
formerly Treasurer of Aquila Distributors, Inc. (since 1981), distributor of the
funds in the Aquila fund complex; Director, Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term New
York Municipals and Bond Fund Series, Oppenheimer Convertible Securities Fund,
Oppenheimer Mid Cap Fund, OCC Cash Reserves, Inc., Trustee of Oppenheimer Quest
for Value Funds, each of which is an open-end investment company; Trustee
Emeritus of Brown University since 1996; Trustee of the Hopkins School since
1993.
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<PAGE>
Brian Shlissel, Treasurer
Age: 35
Vice President of Oppenheimer Capital since July 1999; Vice President of
Mitchell Hutchins Asset Management, Inc. from 1993 to 1999. Assistant Treasurer
of OCC Cash Reserves, Inc., Municipal Advantage Fund, Inc., and the Central
European Value Fund since August 1999. Treasurer and Secretary Jardene Fleming
India Fund from 1997 to 1999. Assistant Treasurer of PaineWebber PACE Select
Advisors Trust from 1998 to 1999.
Mark Degenhart, Vice President and Portfolio Manager
Age: 35
Vice President of Oppenheimer Capital since January 1999; previously, Director
of Research and Portfolio Manager of Palisades Capital Management, which he
joined in 1993.
Bernard H. Garil, Vice President
Age: 58
Managing Director of Oppenheimer Capital; President of Municipal Advantage Fund
Inc. and Executive Vice-President of The Central European Value Fund.
Richard Glasebrook, Vice President and Portfolio Manager
Age: 50
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
Louis Goldstein, Vice President and Portfolio Manager
Age: 38
Senior Vice President, Oppenheimer Capital since 1998, joined Oppenheimer
Capital as Vice President and security analyst in 1991.
Alan Gutmann, Vice President and Portfolio Manager
Age: 38
Senior Vice President and Equity Portfolio Manager, Oppenheimer Capital; joined
Oppenheimer Capital in 1991 as a Security Analyst.
Vikki Hanges, Vice President & Portfolio Manager
Age: 39
Senior Vice President, Oppenheimer Capital since 1998; Vice President from 1992;
Assistant Vice President, 1987-1992.
Elliot Weiss, Secretary
Age: 37
Vice President of OpCap Advisors since March 1996; Vice President of Oppenheimer
Capital from 1995 to 1996; Assistant Vice President of Oppenheimer Capital from
1991 to 1995. Secretary of the Municipal Advantage Fund Inc. and OCC Cash
Reserves, Inc. and Assistant Secretary of The Central European Value Fund, Inc.
since 1999.
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<PAGE>
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.
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.
Maria Camacho, Assistant Secretary since 1999
Age: 46
Vice President of Oppenheimer Capital since 1997. Assistant Vice President from
1994-1997 and Registrations Department Administrator with Oppenheimer Capital.
Remuneration of Officers and Trustees. No officer of the Fund will receive
a salary or fee from the Fund. The following ta ble sets forth the aggregate
compensation paid by the Fund to each of the Trustees during its fiscal year
ended December 31, 1998 and the aggregate compensation paid to each of the
Trustees by OCC Cash Reserves, Inc., a fund managed by OpCap Advisors, and by
six funds for which OpCap Advisors serves as sub-adviser during each such fund's
1998 fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
For the Year ended December 31, 1999
- ------------------------- -------------------- ---------------------- ------------------------ -------------------------
Pension or Total Compensation
Retirement from the Fund, OCC Cash
Aggregate Benefits Estimated Annual Reserves and Six
Name of Trustee Compensation Accrued as Part Benefits upon Oppenheimer
of the Fund from the Fund of Fund Expenses Retirement Quest Funds
- -------------------------------- ------------- ------------------------ ------------------------------------------
<S> <C> <C> <C> <C>
Paul Clinton $ 32,438 $ 23,827 0 $114,523
- -------------------------------- -------- -------- -------- --------
Thomas Courtney $ 32,438 $ 23,827 0 $114,523
- -------------------------------- -------- -------- -------- --------
Lacy Herrmann $ 32,038 $ 23,827 0 $113,623
- -------------------------------- -------- -------- -------- --------
Joseph La Motta 0 0 0 0
- -------------------------------- -------- -------- -------- --------
</TABLE>
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<PAGE>
On October 19, 1998 the Fund adopted a retirement plan (to become effective
January 1, 1999) that provides for payment to a retired Trustee of up to 80% of
the average compensation paid during that Trustee's five years of service in
which the highest compensation was received. A Trustee must serve in that
capacity for the Fund or OCC Cash Reserves, Inc. for at least 15 years to be
eligible for the maximum payment. Because each Trustee's retirement benefit will
depend on the amount of the Trustee's future compensation and length of service,
the amount of those benefits cannot be determined as of this time nor can the
Fund estimate the number of years of credited service that will be used to
determine those benefits.
44
<PAGE>
CONTROL PERSONS
As of December 31, 1999, shares of the Portfolios were held by Oppenheimer
Capital and the Variable Accounts of the following insurance companies, with the
figures beneath each Portfolio representing that company's holdings as a
percentage of each Portfolio's total outstanding shares.
Portfolio Shareholders of Record as of December 31, 1999/1/
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders U.S. Govt. Global Equity Small Cap Managed Mid Balanced
Income Equity Cap
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mutual Life Insurance 10.87%, 3.22%, 1.41%, 3.71%,
Company of New York (New 106,786.251 60,470.577 94,706.587 684,217.255
York, NY) & The MONY Life Shares Shares Shares Shares
Insurance Company of
America
1740 Broadway
NY, NY 10019
- ------------------------------------------------------------------------------------------------------------------------------------
Provident Mutual Life 36.58%, 10.33%, 7.14%,
Insurance Company & 686,972.406 693,829.502 1,315,887.026
Provident Mutual Life and Shares Shares Shares
Annuity Company of America
1600 Market St
Philadelphia, PA 19103
- ------------------------------------------------------------------------------------------------------------------------------------
Connecticut General Life .37%, 4.45%, 2.70%,
Insurance Company & CIGNA 6,883.065 298,978.079 496,719.652
Life Insurance Company shares Shares Shares
350 Church Street
MLW 1, 12th Flr
Hartford, CT 06103-1106
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Providian Life and Health
Insurance
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Company
400 West Market Street,
Louisville, KY 40202
- ---------------------------------------------------------------------------------------------------------------------------------
American Enterprise Life 72.28%, 3.05%, 1.81%, 1.68%,
Insurance Company and 710,185.896 57,209.024 121,748.133 310,411.283
American Centurion Life Shares Shares Shares Shares
Insurance Company
80 South Eighth Street,
Minneapolis, MN 55402
- ---------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital 22.13%,
1345 Avenue of the 103,390.456
Americas, New York, Shares
NY 10105
- ---------------------------------------------------------------------------------------------------------------------------------
IL Annuity and Insurance 2.69%, 2.71%,
Company 2960 North Meridian 180,685.460 499,956.962
Street, Indianapolis, Shares Shares
IN 46208
- ---------------------------------------------------------------------------------------------------------------------------------
PRUCO Life Insurance 57.32%, 59.55%,
Company of New Jersey and 3,849,707.173 10,976,784.582
PRUCO Life Insurance Shares Shares
Company 751 Broad Street,
Newark, NJ 07102
- ---------------------------------------------------------------------------------------------------------------------------------
Transamerica 0.93%, 0.68%,
Transamerica Center 1150 62,746.238 124,722.204
Olive Street, Los Angeles, Shares Shares
CA 90015
- ---------------------------------------------------------------------------------------------------------------------------------
ReliaStar Life Insurance 4.34%, 8.36%, 5.28%, 3.08%,
Company 113,785.414 156,861.280 355,082.973 566,947.221
20 Washington Avenue South, Shares Shares Shares Shares
Route 1237, Minneapolis,
MN 55401
- ---------------------------------------------------------------------------------------------------------------------------------
Aegon 16.85%, 4.85%, 1.94%,
165,600.540 326,161.499 357,294.988
Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Sun Life of Canada (U.S.) 17.69%, 1.87%, 0.31%, 77.87%,
Copley Place, Suite 200, 332,077.646 125,841.935 56,784.085 360,280.293
Boston, MA 02117 Shares Shares Shares Shares
- ---------------------------------------------------------------------------------------------------------------------------------
Travelers Insurance Company 25.90%,
One Tower Square, 486,298.334
Hartford, CT 06183 Shares
- ---------------------------------------------------------------------------------------------------------------------------------
Lincoln Life Insurance 93.03%, 7.25%, 10.22%,
Company 2,438,249.791 487,402.714 1,883,187.082
300 South Clinton Street Shares Shares Shares
Fort Wayne, IN 46802
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ This chart lists all Variable Account shareholders of record of the
Portfolios as of December 31, 1999, and all holdings of shares of the Portfolios
by Oppenheimer Capital, the parent of the Manager. To the best knowledge of the
Fund, no Contractowner held units equivalent to 5% or more of the shares of any
Portfolio of the Fund as of December 31, 1999.
Shares of the Mid Cap Portfolio were acquired by Oppenheimer Capital to
provide capital for the Portfolio so that the Manager could commence a
meaningful investment program for the Portfolios, pending the acquisition of
shares of the Portfolios by Variable Accounts. The shares held by the Variable
Accounts generally will be voted in accordance with instructions of
Contractowners. Under certain circumstances however, the insurance companies, on
behalf of their respective Variable Accounts, may disregard voting instructions
received from Contractowners. The shares held by Oppenheimer Capital will be
voted in the same proportions as those voted by the insurance companies which
are held in their respective Variable Accounts. Any shareholder of record listed
in the above chart beneficially owning 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
47
<PAGE>
could have a more significant effect on matters presented to shareholders for
approval than the votes of the Fund's other shareholders.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Investment Adviser. OpCap Advisors acts as investment adviser to the
Portfolios of the Fund. The PIMCO Equity Advisers Division of PIMCO Advisors
L.P. ("PIMCO Advisors") acts as investment sub-adviser to the Blended Equity,
Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios. PIMCO
Advisors L.P. ("PIMCO") acts as investment sub-advisors to the Managed
Portfolio.
OpCap Advisors, the investment adviser to the Fund (the "Manager"), is a
majority owned subsidiary of Oppenheimer Capital, a registered investment
adviser whose employees perform all investment advisory and management services
provided to the Fund by the Advisor. Oppenheimer Capital is an indirect wholly
owned subsidiary of PIMCO, also a registered investment adviser. The general
partners of PIMCO are PIMCO Partners G.P. and PIMCO Advisors Holdings L.P. PIMCO
Partners, G.P. is a general partnership between PIMCO Holdings LLC, a Delaware
limited liability company and an indirect wholly-owned subsidiary of Pacific
Life Insurance Company, and PIMCO Partners LLC, a California limited liability
company controlled by the current Managing Directors and two former Managing
Directors of Pacific Investment Management Company, a subsidiary of PIMCO. PIMCO
Partners, G.P. is the sole general partner of PIMCO Advisors Holdings L.P.
48
<PAGE>
The Advisory Agreements. OpCap Advisors provides investment advisory and
management services to the Fund pursuant to an Advisory Agreement dated November
5, 1997. The OpCap Advisory Agreement was amended on February 1, 1998 to provide
that OpCap Advisors will limit total operating expenses of the Equity, Mid Cap,
Small Cap, Global Equity, Managed, Balanced and U.S. Government Income
Portfolios to 1.00% (net of any expense offsets) of their respective average
daily net assets and that the Adviser will limit total operating expenses of the
Global Equity Portfolio to 1.25% (net of any expense offsets) of its average
daily net assets.
PIMCO Equity Advisors provides investment advisory and management services
to the Blended Equity, Large Cap Growth, Small Cap Growth, Target and Innovation
Portfolios of the Fund pursuant to a Sub-Advisory Agreement with OpCap Advisers
dated February 1, 2000. PIMCO provides similar services to the Managed Portfolio
of the Fund pursuant to a Sub-Advisory Agreement with OpCap Advisers dated
February 1, 2000.
Under the OpCap Advisory Agreement and the Sub-Advisory Agreements, each
Adviser is required to: (i) regularly provide investment advice and
recommendations to each Portfolio of the Fund it manages with respect to
investments, investment policies and the purchase and sale of securities; (ii)
supervise continuously and determine the securities to be purchased or sold by
the Portfolios it manages and the portion, if any, of the assets of the
Portfolio to be held uninvested; and (iii) arrange for the purchase of
securities and other investments by each Portfolio it manages and the sale of
securities and other investments held by the Portfolio.
The OpCap Advisory Agreement also requires OpCap Advisors to provide
administrative services for the Fund, including (1) coordination of the
functions of accountants, counsel and other parties performing
49
<PAGE>
services for the Fund and (2) preparation and filing of reports required by
federal securities and "blue sky" laws, shareholder reports and proxy materials.
Expenses not expressly assumed by OpCap Advisors under the Advisory
Agreement or by OCC Distributors (the "Distributor") are paid by the Fund. The
OpCap Advisory Agreement lists examples of expenses paid by the Fund, of which
the major categories relate to interest, taxes, fees to non-interested trustees,
legal and audit expenses, custodian and transfer agent expenses, stock issuance
costs, certain printing and registration costs, and non-recurring expenses,
including litigation.
The Distributor is located at 1345 Avenue of the Americas, New York, New
York 10105 and serves as the general distributor for the Fund pursuant to a
General Distributors Agreement dated November 5, 1997. Frank Poli, Secretary and
Vice President of the Fund, is a Principal of the Distributor. Richard M. Weil,
Managing Director of the Fund, is also Managing Director of the Distributor.
Lawrence K. Becker, Treasurer of the Fund, is also Treasurer 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, 1997, the total advisory fees
accrued or paid by the Equity, Managed, Small Cap, U.S. Government Income and
Global Equity Portfolios were $199,896, $2,321,835, $498,382, $35,757 and
$184,504, respectively, of which $8,028 and $2,537 was waived by the Adviser
with respect to the U.S. Government Income Portfolio, and the Global Equity
Portfolio, respectively. For the fiscal year ended December 31, 1998, the total
advisory fees accrued or paid by the Equity, Managed, Small Cap, U.S. Government
Income, Global Equity and Mid Cap Portfolios were $291,218, $5,140,492,
50
<PAGE>
$1,089,755, $49,774, $247,144 and $9,473, respectively, of which $16,027, and
$9,473 was waived by the Adviser with respect to the U.S. Government Income
Portfolio and the Mid Cap Portfolio. For the fiscal year ended December 31,
1999, the total advisory fees accrued or paid by the Equity, Managed, Small Cap,
Balanced, U.S. Government Income, Global Equity and Mid Cap Portfolios were
$498,512, $6,116,104, $1,206,779, $0, $63,217, $302,528 and $27,810,
respectively, of which $24,246 was waived by the Adviser with respect to the
Mid Cap Portfolio.
The advisory fee for the Equity, Global Equity, Managed, Small Cap, Mid
Cap, Balanced, Blended Equity, Large Cap Growth, Small Cap Growth, Target and
Innovation Portfolios is at the annual rate of .80% on the first $400 million of
average daily net assets, .75% on the next $400 million of average daily net
assets and .70% of average daily net assets in excess of $800 million. With
regard to the Managed portfolio, OpCap Advisors pays PIMCO a fee equal to .25%
of the average daily net assets of the Portfolio on an annual basis. OpCap
Advisors pays PIMCO Advisors fees at the annual rate of .40% of the first $400
million of average net assets, .375% on the next $400 million of average net
assets and .35% of assets in excess of $800 million with respect to the Blended
Equity, Large Cap Growth, Small Cap Growth, Target and Innovation Portfolios for
investment advisory services PIMCO Advisors renders to those Portfolios. The
advisory fee for the U.S. Government Income Portfolio is at the annual rate of
.60% of average daily net assets.
The Advisory Agreement and each Sub-Advisory Agreement provide that in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard for its obligations thereunder, the Adviser or Sub-Adviser, as
applicable, is not liable for any act or omission in the course of, or in
connection with, the rendition of services thereunder. The Agreements permit the
Advisers to act as investment adviser for any other person, firm, or
corporation.
51
<PAGE>
Portfolio Transactions. Portfolio decisions are based upon recommendations
of the Adviser, the sub-advisors and the judgment of the portfolio managers. As
most, if not all, purchases made by the U.S. Government Income Portfolio will be
principal transactions at net prices, the Portfolio pays no brokerage
commissions; however prices of debt obligations reflect mark-ups and mark-downs
which constitute compensation to the executing dealer. The Portfolios will pay
brokerage commissions on transactions in listed options and equity securities.
Prices of securities purchased from underwriters of new issues include a
commission or concession paid by the issuer to the underwriter, and prices of
debt securities purchased from dealers include a spread between the bid and
asked prices. The Fund seeks to obtain prompt execution of orders at the most
favorable net price. Transactions may be directed to dealers during the course
of an underwriting in return for their brokerage and research services, which
are intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to the
Fund and/or other accounts of the Adviser and sub-advisers; information received
in connection with directed orders of other accounts managed by the Adviser, the
sub-advisers or their affiliates may or may not be useful to the Fund. Such
information may be in written or oral form and includes information on
particular companies and industries as well as market, economic or institutional
activity areas. It serves to broaden the scope and supplement the research
activities of the Adviser and the sub-adviser, to make available additional
views for consideration and comparison, and to enable the Adviser and each
sub-adviser to obtain market information for the valuation of securities held by
the Fund. For the year ended December 31, 1999, the aggregate dollar amount in
such transactions was $83,421,335 with related Commissions of $173,551 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.
52
<PAGE>
Sales of shares of the Fund, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to brokers and dealers, but only in
conformity with the price, execution and other considerations and practices
discussed above. The Fund may execute brokerage transactions through CIBC
Oppenheimer Corp., Inc. ("CIBC Oppenheimer"), which prior to the consummation of
the acquisition by PIMCO Advisors of Oppenheimer Capital and OpCap Advisors on
November 4, 1997, was an affiliated broker-dealer.
The following table presents information as to the allocation of
brokerage commissions paid to CIBC Oppenheimer by the Equity, Global Equity,
Managed, and Small Cap Portfolios for the year ended December 31, 1997.
<TABLE>
<CAPTION>
- ------------------- ----------------------
Portfolio Total Brokerage
Commission Paid
- ------------------- ----------------------
1997
- ------------------- ----------------------
<S> <C>
Equity $21,025
- ------------------- ----------------------
Managed 224,795
- ------------------- ----------------------
Small Cap 213,701
- ------------------- ----------------------
Global Equity 49,976
- ------------------- ----------------------
<CAPTION>
- -------------------- ------------------------------
Portfolio Brokerage Commission
Paid to CIBC Oppenheimer
- -------------------- ------------------------------
1997 1997
- -------------------- -------------- ---------------
<S> <C> <C>
- -------------------- -------------- ---------------
Equity $5,221 24.8
- -------------------- -------------- ---------------
Managed 82,229 36.6
- -------------------- -------------- ---------------
Small Cap 76,787 35.9
- -------------------- -------------- ---------------
Global Equity 4,675 9.4
- -------------------- -------------- ---------------
<CAPTION>
- ------------------- ---------------------------------------
Portfolio Total Amount of Transactions
Where Brokerage Commissions Paid to
CIBC Oppenheimer
- ------------------- ---------------------------------------
1997 1997
- ------------------- ---------------- ----------------------
<S> <C> <C>
Equity $4,578,999 32.9
- ------------------- ---------------- ----------------------
Managed 78,122,478 36.2
- ------------------- ---------------- ----------------------
Small Cap 32,932,369 38.1
- ------------------- ---------------- ----------------------
Global Equity 5,840,385 27.0
- ------------------- ---------------- ----------------------
</TABLE>
/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.
53
<PAGE>
The Adviser, the sub-advisers and Oppenheimer Capital currently serve as
investment manager to a number of clients, including other investment companies,
and may in the future act as investment manager or adviser to others. It is the
practice of the Adviser and each sub-adviser to cause purchase or sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for managing the Portfolios of the Fund and other client accounts.
When orders to purchase or sell the same security on identical terms are placed
by more than one of the funds and/or other advisory accounts managed by the
Adviser, a sub-adviser or its affiliates, the transactions are generally
executed as received, although a fund or advisory account that does not direct
trades to a specific broker ("free trades") usually will have its order executed
first. Purchases are combined where possible for the purpose of negotiating
brokerage commissions, which in some cases might have a detrimental effect on
the price or volume of the security in a particular transaction as far as the
Fund is concerned. Orders placed by accounts that direct trades to a specific
broker will generally be executed after the free trades. All orders placed on
behalf of the Fund are considered free trades. However, having an order placed
first in the market does not necessarily guarantee the most favorable price.
DETERMINATION OF NET ASSET VALUE
Shares of the Portfolios of the Fund are sold in a continuous offering to
variable accounts of participating life insurance companies to support their
variable annuity and variable life insurance contracts ("Variable Contracts").
Net purchase payments under the Variable Contracts are placed in one or more
subaccounts of the participating life insurance company's variable account, and
the assets of each such subaccount are invested in the shares of the Portfolio
corresponding to that subaccount. The variable accounts purchase and redeem
shares of the Portfolios for their subaccounts at net asset value without sales
or redemption charges.
The net asset value per share of each of the Portfolios of the Fund is
determined each day the New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the NYSE that day, by dividing the value
of the Fund's net assets by the number of shares outstanding. The NYSE's most
recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Martin Luther
54
<PAGE>
King's Birthday, Presidents' Day, Good Friday, Memorial Day, July 4th, Labor
Day, Thanksgiving and Christmas Day. It may also close on other days.
Participating life insurance company variable accounts purchase and redeem
shares of each Portfolio at the Portfolio's net asset value per share determined
after receipt of the order for purchase or redemption.
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
55
<PAGE>
based upon market quotations for securities of similar type, yield, quality and
maturity. Short-term (having a maturity of 60 days or less) debt securities are
valued at amortized cost or value.
Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the spread
between the closing bid and asked prices on the valuation date. Futures are
valued based on their daily settlement value. When a Portfolio writes a call, an
amount equal to the premium received is included in the Portfolio's Statement of
Assets and Liabilities as an asset, and an equivalent credit is included in the
liability section. The credit is adjusted ("marked-to-market") to reflect the
current market value of the call. If a call written by a Portfolio is exercised,
the proceeds on the sale of the underlying securities are increased by the
premium received. If a call or put written by a Portfolio expires on its
stipulated expiration date the Portfolio will realize a gain equal to the amount
of the premium received. If a Portfolio enters into a closing transaction, it
will realize a gain or loss depending on whether the premium was more or less
than the transaction costs, without regard to unrealized appreciation or
depreciation on the underlying securities. If a put held by a Portfolio is
exercised by it, the amount the Portfolio receives on its sale of the underlying
investment is reduced by the amount of the premium paid by the Portfolio.
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.
56
<PAGE>
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.
Sources of Gross Income. To qualify for treatment as a regulated investment
company, a Portfolio must, among other things, derive its income from certain
sources. Specifically, in each taxable year, a Portfolio must generally derive
at least 90% of its gross income from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to its business of
investing in securities or currencies.
Diversification of Assets. To qualify for treatment as a regulated
investment company, a Portfolio must also satisfy certain requirements with
respect to the diversification of its assets: A Portfolio must have, at the
close of each quarter of the taxable year, at least 50% of the value of its
total assets represented by cash, cash items, U.S. Government Securities,
securities of other regulated investment companies, and other securities which,
in respect of any one issuer,do not represent more than 5% of the value of the
assets of the Portfolio nor more than 10% of the voting securities of that
issuer. In addition, at those times, not more than 25% of the value of the
Portfolio's assets may be invested in securities (other than U.S. Government
Securities or the securities of other regulated investment companies) of any one
issuer, or of two or more issuers which the Portfolio controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses. For purposes of a Portfolio's requirements to maintain
diversification for tax purposes, the issuer of a loan participation will
generally be the underlying borrower. However, in cases where the Portfolio does
not have recourse directly against the borrower, both the borrower and each
agent bank and co-lender interposed between the Portfolio and the borrower will
be deemed issuers of the loan participation for tax diversification purposes. A
Portfolio's investments in U.S. Government Securities are not subject to these
limitations. The foregoing diversification requirements are in addition to those
imposed by the 1940 Act.
Because the Fund is established as an investment medium for variable
annuity contracts and variable life insurance contracts, Section 817(h) of the
Code imposes additional diversification requirements on each Portfolio. These
requirements generally are that no more than 55% of the value of the assets of a
Portfolio may be represented by any one investment; no more than 70% by any two
investments; no more than 80% by any three investments; and no more than 90% by
any four investments. For these purposes, all securities of the same issuer are
treated as a single investment and each U.S. Government agency or
instrumentality is treated as a separate issuer.
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.
57
<PAGE>
Yield for 30-day Period ended December 31, 1999 for
U.S. Government Income Portfolio of OCC Accumulation Trust
Yield
U.S. Government Income Portfolio 5.38%
Current yield is calculated according to the following formula:
x
YIELD = 2(--- + 1)/6/ - 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
58
<PAGE>
will be used to compute the average annual total return for each Portfolio
(other than the Money Market Portfolio):
P (1 + T)/N/ = ERV
In addition to the foregoing, each Portfolio may advertise its total return
over different periods of time by means of aggregate, average, year by year or
other types of total return figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share over
the period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in a fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady
annual return that would equal 100% growth on a compounded basis in ten years.
In addition to average annual returns, each Portfolio may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount and may be calculated for a
single investment, a series of investments and/or a series of redemptions over
any time period. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
59
<PAGE>
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund performance
rating services including but not limited to Lipper Analytical Services, Inc.
and Morningstar, Inc., (2) recognized indices including but not limited to the
S&P 500 Index, S&P Mid Cap Index, the Wilshire 750 Mid Cap Index, the Russell
Mid Cap Index, Dow Jones Industrial Average, Consumer Price Index, EAFE Index,
Russell 2000 Index, the Morgan Stanley Capital International (MSCI) World Index
and the Lehman Brothers US Government Bond Index and (3) Money Magazine and
other financial publications including but not limited to magazines, newspapers
and newsletters. Performance statistics may include total returns, measures of
volatility or other methods of portraying performance based on the method used
by the publishers of the information. In addition, comparisons may be made
between yields on certificates of deposit and U.S. government securities and
corporate bonds, and may refer to current or historic financial or economic
trends or conditions.
Average Annual Total Return of Equity, Mid Cap, Managed, Small Cap, U.S.
Government Income and Global Equity Portfolios of OCC Accumulation
Trust/1/,/2/
<TABLE>
<CAPTION>
For the one year period For the five year period For the period from
ended ended inception to
Portfolio December 31, 1999 December 31, 1999 December 31, 1999/*/
- --------- ----------------------- ------------------------- ------------------
<S> <C> <C> <C>
Equity 2.54% 19.98% 15.66%
Mid Cap 21.63% N/A 9.96%
Managed 5.00% 19.69% 17.70%
Small Cap (1.83)% 8.35% 11.48%
U.S. Government Income (1.88)% N/A 5.78%
Global Equity 26.53% N/A 18.06%
</TABLE>
60
<PAGE>
/1/ On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund commenced
operations. The total net assets for each of the Equity, Small Cap and Managed
Portfolios immediately after the transaction were $86,789,755, $139,812,573 and
$682,601,380, respectively, with respect to the Old Trust and for each of the
Equity, Small Cap and Managed Portfolios, $3,764,598, $8,129,274 and
$51,345,102, respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures above
for each of the Equity, Small Cap and Managed Portfolios reflect the performance
of the corresponding Portfolios of the Old Trust.
/2/ Reflects waiver of all or a portion of the advisory fees and the
assumption of other expenses for certain Portfolios by the Manager. Without such
waivers and assumptions, the average annual total return during the periods
would have been lower.
/*/ Inception date of the Global Equity Portfolio is March 1, 1995; the
inception date of the U.S. Government Income Portfolio is January 3, 1995; the
inception date of the Mid Cap Portfolio is February 9, 1998 and the inception
date of the Balanced Portfolio is May 1, 1999. The Equity, Managed and Small Cap
Portfolios commenced operations as part of the Fund on September 16, 1994. The
Old Trust commenced operations on August 1, 1988.
61
<PAGE>
ADDITIONAL INFORMATION
Description of the Trust. The Fund was formed under the laws of
Massachusetts as a business trust on May 12, 1994 under the name Quest for Value
Asset Builder Trust and is an open-end, diversified management investment
company. The name of the Fund was changed to Quest for Value Accumulation Trust
and then to OCC Accumulation Trust. It is not contemplated that share
certificates will be issued or regular annual meetings of the shareholders will
be held. The Fund will provide without charge to any shareholder, upon request
to the Secretary at the Fund's principal office, (a) a full statement of the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of beneficial interest of each series
which the Fund is authorized to issue, (b) the differences in the relative
rights and preferences between the shares of each series to the extent they have
been set, and (c) the authority of the Board of Trustees to set the reliable
rights and preferences of subsequent series. Shareholders have the right, upon
the declaration in writing or vote of a majority of the outstanding shares of
the Fund, to remove a Trustee. The Trustees will call a meeting of shareholders
to vote on the removal of a Trustee upon written request of the record holders
(for at least six months) of 10% of its outstanding shares. In addition, 10
shareholders holding the lesser of $25,000 or 1% of the Fund's outstanding
shares may advise the Trustees in writing that they wish to communicate with
other shareholders for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then either give the applicants access to the Fund's
shareholder list or mail the applicants' communication to all other shareholders
at the applicants' expense.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the Fund's obligations, and provides that the Fund shall indemnify
any shareholder who is held personally liable for the
62
<PAGE>
obligations of the Fund. It also provides that the Fund shall assume, upon
request, the defense of any claim made against any shareholder for any act or
obligation of the Fund and shall satisfy any judgment thereon.
Thus, while Massachusetts law permits a shareholder of a trust (such as the
Fund) to be held personally liable as a partner under certain circumstances, the
risk of a shareholder incurring any financial loss on account of shareholder
liability is limited to the relatively remote circumstance in which the Fund
itself would be unable to meet the obligations described above.
Possible Additional Portfolio Series. If additional Portfolios are created
by the Board of Trustees, shares of each such Portfolio will be entitled to vote
as a class only to the extent permitted by the 1940 Act (see below) or as
permitted by the Board of Trustees. Income and operating expenses would be
allocated fairly among two or more Portfolios by the Board of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to a
vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved by
the holders of a "majority" (as defined in that Rule) of the voting securities
of each series affected by the matter. Such separate voting requirements do not
apply to the election of trustees or the ratification of the selection of
independent accountants. The Rule contains special provisions for cases in which
an advisory agreement is approved by one or more, but not all, series. A change
in investment policy may go into effect as to one or more series whose holders
so approve the change even though the required vote is not obtained as to the
holders of other affected series.
63
<PAGE>
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.
64
<PAGE>
Item 23 Exhibits:
- ------------------
(a) (1) Declaration of Trust - Previously filed with Post-Effective
Amendment No. 3.
(a) (2) Amendment to Declaration of Trust dated September 1, 1994 -
Previously filed with Post Effective Amendment No. 3.
(a) (3) Amendment to Declaration of Trust dated September 16, 1994 -
Previously filed with Post-Effective Amendment No. 3.
(a) (4) Amendment to Declaration of Trust dated April 22, 1996 -
Previously filed with Post-Effective Amendment No. 2.
(b) By-Laws of Registrant - Previously filed with Post-Effective
Amendment No. 3.
(c) Articles VI, VIII, IX and X of the Declaration of Trust and
Article III of the Bylaws - Previously filed with Post
Effective Amendment No. 10.
(d)(1) Investment Advisory Agreement with OpCap Advisors. Previously
filed with Post-Effective Amendment No. 8.
(d)(2) Investment Sub-Advisory Agreement between PIMCO Equity
Advisors and OpCap Advisors.
(d)(3) Investment Sub-Advisory Agreement between PIMCO and OpCap
Advisors.
(e) Distribution Agreement. - Previously filed with Post-Effective
Amendment No. 8.
(f) Retirement Plan for Non-Interested Trustees or Directors -
Previously filed with Post-Effective Amendment No. 9.
(g) Custody Agreement - Previously filed with Post-Effective
Amendment No. 3.
(h)(1) Participation Agreement for American Enterprise Life Insurance
Company - Previously filed with Post-Effective Amendment
No. 3.
(h)(2) Amendment No. 1 to Participation Agreement for American
Enterprise Life Insurance Company - Previously filed with
Post-Effective Amendment No. 8.
(h)(3) Participation Agreement for Connecticut General Life Insurance
Company and amendment dated August 30, 1996 - Previously filed
with Post-Effective Amendment No. 3.
C-1
<PAGE>
(h)(4) Participation Agreement for IL Annuity and Insurance Company-
Previously filed with Post-Effective Amendment No. 2.
(h)(5) Participation Agreement for Connecticut General Life Insurance
Company (Separate Account T3)-Previously filed with Post-
Effective Amendment No. 2.
(h)(6) Fund Participation Agreement for CIGNA Life Insurance Company
dated September 5, 1996 - Previously filed with Post-Effective
Amendment No. 3.
(h)(7) Amendment to Fund Participation Agreement for Connecticut
General Life Insurance Company dated 4/23/97 - Previously
filed with Post-Effective Amendment No. 5.
(h)(8) Participation Agreement for Providentmutual Life dated
9/16/94 -Previously filed with Post-Effective Amendment No. 4.
(h)(9) Participation Agreement for PRUCO Life Insurance Company of
Arizona dated 7/1/96 - Previously filed with Post-Effective
Amendment No. 4.
(h)(10) Participation Agreement for PRUCO Life Insurance Company of
New Jersey dated 1/1/97 - Previously filed with Post-Effective
Amendment No. 4.
(h)(11) Participation Agreement for Prudential Insurance Company of
America -Previously filed with Post-Effective Amendment No. 4.
(h)(12) Participation Agreement for MONY Life Insurance Company of
America and The Mutual Life Insurance Company of New York
dated as of September 16, 1994 - Previously filed with Post-
Effective Amendment No. 7.
(h)(13) Participation Agreement for ReliaStar Life Insurance Company
dated August 8, 1997 - Previously filed with Post-Effective
Amendment No. 7.
(h)(14) Participation Agreement for ReliaStar Bankers Security Life
Insurance Company dated August 8, 1997 - Previously filed with
Post-Effective Amendment No. 7.
(h)(15) Participation Agreement for Northern Life Insurance Company
dated August 8, 1997 - Previously filed with Post-Effective
Amendment No. 7.
(h)(16) Participation Agreement for American Centurion Life Insurance
Assurance Company - Previously filed with Post-Effective
Amendment No. 7.
C-2
<PAGE>
(h)(17) Participation Agreement for Sun Life Assurance Company of
Canada (U.S.) dated as of February 17, 1998 - Previously filed
with Post-Effective Amendment No. 8.
(h)(18) Participation Agreement for Transamerica Life Insurance
Company of New York dated December 15, 1997 - Previously filed
with Post-Effective Amendment No. 8.
(h)(19) Participation Agreement for Transamerica Occidental Life
Insurance Company dated December 15, 1997 - Previously filed
with Post-Effective Amendment No. 8.
(h)(20) Participation Agreement for Transamerica Life and Annuity
Company dated December 15, 1997 - Previously filed with Post-
Effective Amendment No. 8.
(h)(21) Amendment No. 2 dated August 21, 1998 to Participation
Agreement for American Enterprise Life Insurance Company,
dated February 21, 1995 - Previously filed with Post-Effective
Amendment No. 9.
(h)(22) Participation Agreement for Lincoln National Life Insurance,
dated May 15, 1998 and amendment thereto dated October 7,
1998 -Previously filed with Post-Effective Amendment No. 9.
(h)(23) Participation Agreement for First Providian Life and Health
Insurance Company, dated November 1, 1996 - Previously filed
with Post-Effective Amendment No. 9.
(h)(24) Participation Agreement for Providian Life and Health
Insurance Company, dated September 16, 1994 - Previously filed
with Post-Effective Amendment No. 9.
(h)(25) Amendment dated September 1, 1998 to Participation Agreement
of August 8, 1997 for ReliaStar Life Insurance Company of New
York (formerly ReliaStar Bankers Life Insurance Company) -
Previously filed with Post-Effective Amendment No. 9.
(h)(26) Amendment dated October 14, 1998 to Participation Agreement
dated September 17, 1997 for American Centurion Life Insurance
Company- Previously filed with Post-Effective Amendment No. 9.
(h)(27) Amendment dated December 1, 1998 to Participation Agreement of
February 17, 1998 for Sun Life Assurance Company of Canada
(U.S.)- Previously filed with Post-Effective Amendment No. 9.
C-3
<PAGE>
(h)(28) Participation Agreement for Travelers Insurance Company dated
May 1, 1998 - Previously filed with Post-Effective Amendment
No. 9.
(h)(29) Amendment dated January 1, 1999 to Participation Agreement
with Transamerica Occidental Life Insurance Company -
Previously filed with Post-Effective Amendment No. 10.
(h)(30) Amendment dated September 8, 1998 to Participation Agreement
with Transamerica Life Insurance and Annuity Company -
Previously filed with Post-Effective Amendment No. 10.
(h)(31) Participation Agreement dated September 30, 1999 with Lincoln
Benefit Life Company - Previously filed with Post-Effective
Amendment No. 11.
(i) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and non-assessable -
Previously filed with Post-Effective Amendment No. 3.
(j) Consent of Independent Accountants.
(k) Not Applicable.
(l) Agreement relating to initial capital - Previously filed with
Post-Effective Amendment No. 3.
(m) Not Applicable.
(n) Not Applicable.
Item 24. Persons Controlled by or Under Common Control with Registrant
- -------- -------------------------------------------------------------
No person is presently controlled by or under common control with the
Registrant.
Item 25. Indemnification
- -------- ---------------
Pursuant to Article V, Sec. 5.3 of the Registrant's Declaration
of Trust, the Trustees shall provide for indemnification by the Trust
of any present or former trustee, officer or agent in connection with
any claim, action, suit or proceeding in which he becomes involved as
a party or otherwise by virtue of his being, or having been, a
trustee, officer or agent of the Trust. The Trust By-Laws provide
that, in other than derivative or shareholder suits, trustees,
officers and/or agents will be indemnified against expenses of actions
or omissions if the actions or omissions
C-4
<PAGE>
complained of were in good faith and reasonably believed to be in and
not opposed to the best interests of the Trust, or, if a criminal
action, the accused had no cause to believe his conduct was unlawful.
In derivative and shareholder actions, such trustee, officer
and/or agent shall be indemnified against expenses except where
liability arises by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties as described in Section
17(h) and (i) of the Investment Company Act of 1940. Either Trustees
not a party to the action, shareholders or independent legal counsel
by written opinion may, in appropriate circumstances, decide questions
of indemnification under the By-Laws.
The Trust may purchase insurance insuring its officers and
trustees against certain liabilities in their capacity as such, and
insuring the Trust against any payments which it is obligated to make
to such persons under any foregoing indemnification provisions.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
See "Management of the Fund" in the Prospectus and "Investment
Management and Other Services" in the Additional Statement regarding
the business of the investment adviser. Set forth below is information
as to the business, profession, vocation or employment of a
substantial nature of each of the officers and directors of the
investment adviser.
C-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Name & Current Position with OpCap Advisors Other Business and Connections During the Past
- ------------------------------------------- ----------------------------------------------
Two Years
----------
Frank Poli, Secretary Chief Legal Officer of PIMCO Advisors, L.P.;
Secretary of Oppenheimer Capital and OCC
Distributors.
Kenneth M. Poovey, Chief Executive Officer Chief Executive Officer of Oppenheimer Capital;
Chief Operating Officer of PIMCO Advisors, L.P.
Lawrence K. Becker, Treasurer and Chief Managing Director/Treasurer/Chief Financial
Financial Officer Officer of Oppenheimer Capital; Treasurer and
Chief Financial Officer of OCC Distributors.
</TABLE>
The address of OpCap Advisors is 1345 Avenue of the Americas, New York, New York
10105-4800.
<TABLE>
<CAPTION>
<S> <C>
Item 27. Principal Underwriter
- -------- ---------------------
(a) OCC Distributors acts as principal underwriter for the Registrant
and OCC Cash Reserves, Inc.
(b) Set forth below is certain information pertaining to the partners
and officers of OCC Distributors, Registrant's Principal
Underwriter; the Principal Business Address of each is 1345
Avenue of the Americas, New York, New York 10105-4800 except for
Value Advisors LLC whose Principal Business Address is: 800
Newport Center Drive, Newport Beach, CA 92660.
[To be updated.]
</TABLE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ----------------------- --------------------- ---------------------
<S> <C> <C>
Oppenheimer Capital General Partner None
Value Advisors LLC General Partner None
Frank Poli Principal Secretary/Vice President
David J. Ungar Financial Principal None
Richard M. Weil Managing Director Managing Director
Lawrence K. Becker Treasurer Treasurer
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C>
(c) Not applicable.
</TABLE>
Item 28. Location of Required Records -- Rule 31a-1
- -------- ------------------------------------------
(Except those maintained by Custodian and Transfer Agent)
OpCap Advisors
1345 Avenue of the Americas
New York, NY 10105-4800
Item 29. Management Services
- -------- -------------------
Not Applicable.
Item 30. Undertakings
- -------- ------------
Not applicable.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act of 1933 and has duly caused this registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
New York, and State of New York on the 31st day of January 2000.
OCC ACCUMULATION TRUST
s/Joseph M. La Motta
-----------------------------
Joseph M. La Motta, President
Attest:
s/Elliot M. Weiss
- --------------------------
Elliot M. Weiss, Secretary
Pursuant to the requirements of the Securities Act of 1933 this registration
statement has been signed below by the following persons in the capacities and
on the date indicated:
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
<S> <C>
Date
----
s/Joseph M. La Motta January 31, 2000
- ----------------------------------------- ----------------------
Joseph M. La Motta, President, Trustee
s/Paul Y. Clinton January 31, 2000
- ----------------------------------------- ----------------------
Paul Y. Clinton, Trustee
s/Thomas W. Courtney January 31, 2000
- ----------------------------------------- ----------------------
Thomas W. Courtney, Trustee
s/Lacy B. Herrmann January 31, 2000
- ----------------------------------------- ----------------------
Lacy B. Herrmann, Trustee
S/Elliot M. Weiss January 31, 2000
- ----------------------------------------- ----------------------
Elliot M. Weiss, Secretary
s/Brian S. Shlissel January 31, 2000
- ----------------------------------------- ----------------------
Brian S. Shlissel, Treasurer
</TABLE>
C-8
<PAGE>
OCC Accumulation Trust
INDEX TO EXHIBITS
Exhibit No.
- -----------
(d)(2) Investment Sub-Advisory Agreement between PIMCO Equity
Advisors and OpCap Advisors.
(d)(3) Investment Sub-Advisory Agreement between PIMCO and OpCap
Advisors.
(j) Consent of Independent Accountants.
<PAGE>
EXHIBIT (d)(2)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of February, 2000 between OpCap Advisors (the
"Adviser"), a limited partnership, and PIMCO Advisors L.P. (the "Portfolio
Manager"), a limited partnership.
WHEREAS, OCC Accumulation Trust (the "Trust") is registered with the
Securities and Exchange Commission ("SEC") as an open-end, management investment
company under the Investment Company Act of 1940 and the rules and regulations
thereunder, as amended from time to time (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series, with each such series representing interests in a
separate portfolio; and
WHEREAS, the Portfolio Manager is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940 and the rules and regulations
thereunder, as amended from time to time (the "Advisers Act"); and
WHEREAS, the Trust has retained the Adviser to render management services
to the Trust's series pursuant to an Investment Advisory Agreement dated as of
November 5, 1997, and such Agreement authorizes the Adviser to engage sub-
advisers to discharge the Adviser's responsibilities with respect to the
management of such series; and
WHEREAS, the Adviser desires to retain the Portfolio Manager to furnish
investment advisory services to one or more of the series of the Trust, and the
Portfolio Manager is willing to furnish such services to such series and the
Adviser in the manner and on the terms hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the promises and mutual
covenants herein contained, it is agreed between the Adviser and the Portfolio
Manager as follows:
1. Appointment. The Adviser hereby appoints PIMCO Advisors L.P. to act as sub-
advisor to the Funds set forth in Schedule A (the "Funds") for the periods and
on the terms set forth in this Agreement. The Portfolio Manager accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
In the event the Adviser wishes to retain the Portfolio Manager to render
investment advisory services to one or more series of the Trust other than the
Funds, the Adviser shall notify the Portfolio Manager in writing. If the
Portfolio Manager is willing to render such services, it shall notify the
Adviser in writing, whereupon such series shall become a Fund hereunder, and be
subject to this Agreement.
2. Portfolio Management Duties. Subject to the supervision of the Trust's
Board of Trustees and the Adviser, the Portfolio Manager will provide a
continuous investment program for the Funds and determine the composition of the
assets of the Funds (with respect to assets managed by the Portfolio Manager),
including determination of the purchase, retention, or sale
<PAGE>
of the securities, cash, and other investments for the Funds. The Portfolio
Manager will provide investment research and analysis, which may consist of
computerized investment methodology, and will conduct a continuous program of
evaluation, investment, sales, and reinvestment of the Funds' assets by
determining the securities and other investments that shall be purchased,
entered into, sold, closed, or exchanged for the Funds, when these transactions
should be executed, and what portion of the assets of the Funds should be held
in the various securities and other investments in which it may invest, and the
Portfolio Manager is hereby authorized to execute and perform such services on
behalf of the Funds. To the extent permitted by the investment policies of the
Funds, the Portfolio Manager shall make decisions for the Funds as to foreign
currency matters with respect to assets managed by the Portfolio Manager and
make determinations as to the retention or disposition of foreign currencies or
securities or other instruments denominated in foreign currencies, or derivative
instruments based upon foreign currencies, including forward foreign currency
contracts and options and futures on foreign currencies and shall execute and
perform the same on behalf of the Funds. The Portfolio Manager will provide the
services under this Agreement in accordance with each Fund's investment
objective or objectives, investment policies, and investment restrictions as
stated in the Trust's registration statement filed on Form N-1A with the SEC, as
supplemented or amended from time to time (the "Registration Statement"), copies
of which shall be sent to the Portfolio Manager by the Adviser. In performing
these duties, the Portfolio Manager:
(1) Shall conform with the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and regulations,
with any applicable procedures adopted by the Trust's Board of Trustees,
and with the provisions of the Registration Statement, as supplemented or
amended from time to time.
(2) Shall use reasonable efforts to manage each Fund so that it
qualifies as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
(3) Is responsible, in connection with its responsibilities under this
Section 2, for decisions with respect to the assets managed by the
Portfolio Manager, to buy and sell securities and other investments for
the Funds, for broker-dealer and futures commission merchant ("FCM")
selection, and for negotiation of commission rates. The Portfolio
Manager's primary consideration in effecting a security or other
transaction will be to obtain the best execution for the Funds, taking
into account the factors specified in the Prospectus and Statement of
Additional Information for the Trust, as they may be amended or
supplemented from time to time. Subject to such policies as the Board of
Trustees may determine and consistent with Section 28(e) of the
Securities Exchange Act of 1934, the Portfolio Manager shall not be
deemed to have acted unlawfully or to have breached any duty created by
this Agreement or otherwise solely by reason of its having caused a Fund
to pay a broker or dealer, acting as agent, for effecting a portfolio
transaction at a price in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction, if
the Portfolio Manager determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of
either that
-2-
<PAGE>
particular transaction or the Portfolio Manager's overall
responsibilities with respect to the Funds and to its other clients as to
which it exercises investment discretion. To the extent consistent with
these standards, and in accordance with Section 11(a) of the Securities
Exchange Act of 1934, and subject to any other applicable laws and
regulations, the Portfolio Manager is further authorized to allocate the
orders placed by it on behalf of the Funds to the Portfolio Manager if it
is registered as a broker or dealer with the SEC, to its affiliate that
is registered as a broker or dealer with the SEC, or to such brokers and
dealers that also provide research or statistical research and material,
or other services to the Funds or the Portfolio Manager. Such allocation
shall be in such amounts and proportions as the Portfolio Manager shall
determine consistent with the above standards, and, upon request, the
Portfolio Manager will report on said allocation to the Adviser and the
Board of Trustees of the Trust, indicating the brokers or dealers to
which such allocations have been made and the basis therefor.
(4) May, on occasions when the purchase or sale of a security is deemed
to be in the best interest of a Fund as well as any other investment
advisory clients, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to
be sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the
Registration Statement. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Portfolio Manager in a manner that is fair and
equitable in the judgment of the Portfolio Manager in the exercise of its
fiduciary obligations to the Trust and to such other clients.
(5) Will, in connection with the purchase and sale of securities for
each Fund, arrange for the transmission to the custodian for the Trust on
a daily basis, such confirmations, trade tickets, and other documents and
information, including, but not limited to, Cusip, Sedol, or other
numbers that identify securities to be purchased or sold on behalf of
such Fund, as may be reasonably necessary to enable the custodian to
perform its administrative and recordkeeping responsibilities with
respect to such Fund, and, with respect to portfolio securities to be
purchased or sold through the Depository Trust Company, will arrange for
the automatic transmission of the confirmation of such trades to the
Trust's custodian.
(6) Will assist the custodian and recordkeeping agent(s) for the Trust
in determining or confirming, consistent with the procedures and policies
stated in the Registration Statement, the value of any portfolio
securities or other assets of each Fund for which the custodian and
recordkeeping agent(s) seek assistance from the Portfolio Manager or
identify for review by the Portfolio Manager.
(7) Will make available to the Trust and the Adviser, promptly upon
request, any of the Funds' investment records and ledgers as are
necessary to assist the Trust to comply with requirements of the 1940 Act
and the Advisers Act, as well as other applicable laws, and will furnish
to regulatory authorities having the requisite authority any information
or reports in connection with such services which may be requested in
order
-3-
<PAGE>
to ascertain whether the operations of the Trust are being conducted in a
manner consistent with applicable laws and regulations.
(8) Will regularly report to the Trust's Board of Trustees on the
investment program for each Fund and the issuers and securities
represented in the Fund's portfolio, and will furnish the Trust's Board
of Trustees with respect to each Fund such periodic and special reports
as the Trustees may reasonably request.
(9) Shall be responsible for making reasonable inquiries and for
reasonably ensuring that any employee of the Portfolio Manager has not,
to the best of the Portfolio Manager's knowledge:
(1) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising
out of such person's conduct as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities
broker, government securities dealer, transfer agent, or entity or
person required to be registered under the Commodity Exchange Act, or
as an affiliated person, salesman, or employee of any investment
company, bank, insurance company, or entity or person required to be
registered under the Commodity Exchange Act; or
(2) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent
jurisdiction from acting as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, or entity or person
required to be registered under the Commodity Exchange Act, or as an
affiliated person, salesman or employee of any investment company,
bank, insurance company, or entity or person to required be registered
under the Commodity Exchange Act, or from engaging in or continuing any
conduct or practice in connection with any such activity or in
connection with the purchase or sale of any security.
3. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed the
Registration Statement and represents and warrants that, with respect to the
disclosure about the Portfolio Manager or information relating, directly or
indirectly, to the Portfolio Manager, such Registration Statement contains, as
of the date hereof, no untrue statement of any material fact and does not omit
any statement of a material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading. The Portfolio
Manager further represents and warrants that it is a duly registered investment
adviser under the Advisers Act and a duly registered investment adviser in all
states in which the Portfolio Manager is required to be registered. The Adviser
has received a current copy of the Portfolio Manager's Uniform Application for
Investment Adviser Registration on Form ADV, as filed with the SEC. The
Portfolio Manager agrees to provide the Adviser with current copies of the
Portfolio Manager's Form ADV, and any supplements or amendments thereto, as
filed with the SEC.
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<PAGE>
4. Expenses. During the term of this Agreement, the Portfolio Manager will pay
all expenses incurred by it and its staff and for their activities in connection
with its services under this Agreement. The Portfolio Manager shall not be
responsible for any of the following:
(1) Expenses of all audits by the Trust's independent public accountants;
(2) Expenses of the Trust's transfer agent(s), registrar, dividend
disbursing agent(s), and shareholder recordkeeping services;
(3) Expenses of the Trust's custodial services, including recordkeeping
services provided by the custodian;
(4) Expenses of obtaining quotations for calculating the value of each
Fund's net assets;
(5) Expenses of obtaining Portfolio Activity Reports for each Fund;
(6) Expenses of maintaining the Trust's tax records;
(7) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Adviser, its subsidiaries or affiliates;
(8) Taxes, if any, levied against the Trust or any of its series;
(9) Brokerage fees and commissions in connection with the purchase and sale
of portfolio securities for the Funds;
(10) Costs, including the interest expenses, of borrowing money;
(11) Costs and/or fees incident to meetings of the Trust's shareholders,
the preparation and mailings of prospectuses and reports of the Trust to its
shareholders, the filing of reports and regulatory bodies, the maintenance of
the Trust's existence, and the registration of shares with federal and state
securities or insurance authorities;
(12) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(13) Costs of printing stock certificates, if any, representing Shares of
the Trust;
(14) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate thereof;
(15) The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
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<PAGE>
(16) Association membership dues;
(17) Extraordinary expenses of the Trust as may arise, including expenses
incurred in connection with litigation, proceedings and other claims and the
legal obligations of the Trust to indemnify its trustees, officers, employees,
shareholders, distributors, and agents with respect thereto; and
(18) Organizational and offering expenses and, if applicable, reimbursement
(with interest) of underwriting discounts and commissions.
5. Compensation. For the services provided, the Adviser will pay the
Portfolio Manager a fee accrued and computed daily and payable monthly, based on
the average daily net assets of each Fund as set forth on the Schedule A
attached hereto.
6. Seed Money. The Adviser agrees that the Portfolio Manager shall not be
responsible for providing money for the initial capitalization of the Trust or
any Fund.
7. Compliance.
(a) The Portfolio Manager agrees that it shall immediately notify the
Adviser and the Trust in the event (i) that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, and
(ii) upon having a reasonable basis for believing that a Fund has ceased to
qualify or might not qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code. The Portfolio Manager further agrees to notify
the Adviser and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Adviser agrees that it shall immediately notify the Portfolio
Manager in the event (i) that the SEC has censured the Adviser or the Trust;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Adviser's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, and (ii) upon having a reasonable basis for believing that any Fund has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
8. Independent Contractor. The Portfolio Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Adviser from time to time, have
no authority to act for or represent the Adviser in any way or otherwise be
deemed its agent. The Portfolio Manager understands that unless expressly
provided herein or authorized from time to time by the Trust, the Portfolio
Manager
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<PAGE>
shall have no authority to act for or represent the Trust in any way or
otherwise be deemed the Trust's agent.
9. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Funds are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's or the
Adviser's request, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. The Portfolio Manager further agrees to
preserve the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in that Rule.
10. Cooperation. Each party to this Agreement agrees to cooperate with each
other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC) in connection
with any investigation or inquiry relating to this Agreement or the Trust.
11. Services Not Exclusive. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall prevent
the Portfolio Manager (or its affiliates) from providing similar services to
other clients, including investment companies (whether or not their investment
objectives and policies are similar to those of the Funds) or from engaging in
other activities.
12. Liability. Except as provided in Section 13 and as may otherwise be
required by the 1940 Act or other applicable law, the Adviser agrees that the
Portfolio Manager, any affiliated person of the Portfolio Manager, and each
person, if any, who, within the meaning of Section 15 of the Securities Act of
1933 (the "1933 Act") controls the Portfolio Manager shall not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Portfolio Manager's duties, or by reason of
reckless disregard of the Portfolio Manager's obligations and duties under this
Agreement.
13. Indemnification. The Portfolio Manager agrees to indemnify and hold
harmless, the Adviser, any affiliated person within the meaning of Section
2(a)(3) of the 1940 Act ("affiliated person") of the Adviser and each person, if
any, who, within the meaning of Section 15 of the 1933 Act, controls
("controlling person") the Adviser (collectively, "PM Indemnified Persons")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Adviser or such affiliated
person or controlling person may become subject under the 1933 Act, 1940 Act,
the Advisers Act, under any other statute, at common law or otherwise, arising
out of the Portfolio Manager's responsibilities to the Trust which (i) may be
based upon any misfeasance, malfeasance, or nonfeasance by the Portfolio
Manager, any of its employees or representatives, or any affiliate of or any
person acting on behalf of the Portfolio Manager (other than a PM Indemnified
Person), or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
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<PAGE>
covering the Shares of the Trust or any Fund, or any amendment thereof or any
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such a statement or omission was made in reliance
upon information furnished to the Adviser, the Trust, or any affiliated person
of the Trust by the Portfolio Manager or any affiliated person of the Portfolio
Manager (other than a PM Indemnified Person); provided, however, that in no case
is the Portfolio Manager's indemnity in favor of the Adviser or any affiliated
person or controlling person of the Adviser deemed to protect such person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of his duties, or by reason of his reckless disregard of obligation and duties
under this Agreement.
The Adviser agrees to indemnify and hold harmless the Portfolio Manager,
any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act of
the Portfolio Manager and each person, if any, who, within the meaning of
Section 15 of the 1933 Act controls the Portfolio Manager (collectively,
"Adviser Indemnified Persons") against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which the
Portfolio Manager or such affiliated person or controlling person may become
subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of the Adviser's
responsibilities as adviser of the Trust which (i) may be based upon any
misfeasance, malfeasance, or nonfeasance by the Adviser, any of its employees or
representatives or any affiliate of or any person acting on behalf of the
Adviser (other than an Adviser Indemnified Person) or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares of the Trust or any Fund,
or any amendment thereof or any supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, unless such statement or
omission was made in reliance upon written information furnished to the Adviser
or any affiliated person of the Adviser by the Portfolio Manager or any
affiliated person of the Portfolio Manager (other than an Adviser Indemnified
Person); provided, however, that in no case is the indemnity of the Adviser in
favor of the Portfolio Manager, or any affiliated person or controlling person
of the Portfolio Manager deemed to protect such person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties, or
by reason of his reckless disregard of obligations and duties under this
Agreement.
14. Duration and Termination. This Agreement shall take effect as of the
date hereof, and shall remain in effect for two years from such date, and
continue thereafter on an annual basis with respect to a Fund; provided that
such annual continuance is specifically approved at least annually (a) by the
vote of a majority of the entire Board of Trustees of the Trust, or (b) by the
vote of a majority of the outstanding voting securities (as such term is defined
in the 1940 Act) of that Fund, and provided that continuance is also approved by
the vote of a majority of the Board of Trustees of the Trust who are not parties
to this Agreement or "interested persons" (as such term is defined in the 1940
Act) of the Trust, the Adviser, or the Portfolio Manager, cast in person at a
meeting called for the purpose of voting on such approval. This Agreement may
not be materially amended with respect to a Fund without the vote of a majority
of the outstanding voting
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<PAGE>
securities (as such term is defined in the 1940 Act) of that Fund. This
Agreement may be terminated:
(1) by the Trust at any time with respect to the services provided by
the Portfolio Manager, without the payment of any penalty, by vote of a
majority of the entire Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as such term is defined in
the 1940 Act) of the Trust or, with respect to a particular Fund, by vote
of a majority of the outstanding voting securities of that Fund, on 60
days' written notice to the Portfolio Manager;
(2) by the Portfolio Manager at any time, without the payment of any
penalty, upon 60 days' written notice to the Trust;
(3) by the Adviser at any time, without the payment of any penalty,
upon 60 days' written notice to the Portfolio Manager.
However, any approval of this Agreement by the holders of a majority of the
outstanding voting securities (as such term is defined in the 1940 Act) of a
particular Fund shall be effective to continue this Agreement with respect to
the Fund notwithstanding (a) that this Agreement has not been approved by the
holders of a majority of the outstanding voting securities of any other Fund or
other series of the Trust or (b) that this Agreement has not been approved by
the vote of a majority of the outstanding voting securities of the Trust, unless
such approval shall be required by any other applicable law or otherwise. This
Agreement will terminate automatically with respect to the services provided by
the Portfolio Manager in the event of its assignment, as that term is defined in
the 1940 Act, by the Portfolio Manager.
15. Agreement and Declaration of Trust. A copy of the Declaration of Trust
of the Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts. Notice is hereby given that this Agreement is executed on behalf
of the Trustees of the Trust as Trustees and not individually, and that the
obligations of or arising out of this Agreement are not binding upon any of the
Trustees, officers or shareholders of the Trust individually, but are binding
only upon the assets and property of the Trust.
16. Proxies. Unless the Adviser gives written instructions to the contrary,
the Portfolio Manager shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Fund may be invested by the
Portfolio Manager. The Portfolio Manager shall maintain a record of how the
Portfolio Manager voted and such record shall be available to the Adviser upon
its request. The Portfolio Manager shall use its best good faith judgement to
vote such proxies in a manner which best serves the interests of the Fund's
shareholders.
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<PAGE>
17. Notices. Any written notice required by or pertaining to this
Agreement shall be personally delivered to the party for whim it is intended, at
the address stated below, or shall be sent to such party by prepaid first class
mail or by facsimile.
If to the Adviser: OpCap Advisors
1345 Avenue of the Americas, 50th Flr.
New York, NY 10105-4800
Fax: 212-739-3948
Attention: Legal Department
cc: Account Management
If to the Portfolio Manager: PIMCO Advisors L.P.
1345 Avenue of the Americas, 50th Flr.
New York, NY 10105-4800
Fax: 212-739-3948
Attention: Legal Department
cc: Account Management
18. Confidential Information. The Portfolio Manager shall maintain the
strictest confidence regarding the business affairs of the Fund. Written
reports furnished by the Portfolio Manager to the Advisor shall be treated by
the Advisor and the Portfolio Manager as confidential and for the exclusive use
and benefit of the Advisor except as disclosure may be required by applicable
law.
19. Miscellaneous.
-------------
(a) This Agreement shall be governed by the laws of the State of New York,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder.
(b) The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise with regard to any party hereunder, such provisions with respect to
other parties hereto shall not be affected thereby.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
OPCAP ADVISORS
_____________________________ By:____________________________
Attest: Title:
Title:
PIMCO ADVISORS L.P.
______________________________ By:____________________________
Attest: Title:
Title
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<PAGE>
SCHEDULE A
----------
FUND ANNUAL FEE RATE*
- ---- ---------------
Large Cap Growth Portfolio 0.40% on first $400 million
0.375% on nest $400 million
0.35% thereafter
Small Cap Growth Portfolio 0.40% on first $400 million
0.375% on nest $400 million
0.35% thereafter
Target Portfolio 0.40% on first $400 million
0.375% on nest $400 million
0.35% thereafter
Innovation Portfolio 0.40% on first $400 million
0.375% on nest $400 million
0.35% thereafter
Blended Equity Portfolio** 0.40% on first $400 million
0.375% on nest $400 million
0.35% thereafter
* The Annual Fee Rates are based on the average daily net assets of the
particular Fund taken separately.
** Based upon the percentage of assets managed.
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<PAGE>
EXHIBIT (d)(3)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of March, 2000 between OpCap Advisors (the
"Adviser"), a limited partnership, and Pacific Investment Management Company
(the "Portfolio Manager"), a limited partnership.
WHEREAS, OCC Accumulation Trust (the "Trust") is registered with the
Securities and Exchange Commission ("SEC") as an open-end, management investment
company under the Investment Company Act of 1940 and the rules and regulations
thereunder, as amended from time to time (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series, with each such series representing interests in a
separate portfolio; and
WHEREAS, the Portfolio Manager is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940 and the rules and regulations
thereunder, as amended from time to time (the "Advisers Act"); and
WHEREAS, the Trust has retained the Adviser to render management services
to the Trust's series pursuant to an Investment Advisory Agreement dated as of
November 5, 1997, and such Agreement authorizes the Adviser to engage sub-
advisers to discharge the Adviser's responsibilities with respect to the
management of such series; and
WHEREAS, the Adviser desires to retain the Portfolio Manager to furnish
investment advisory services to one or more of the series of the Trust, and the
Portfolio Manager is willing to furnish such services to such series and the
Adviser in the manner and on the terms hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the promises and mutual
covenants herein contained, it is agreed between the Adviser and the Portfolio
Manager as follows:
1. Appointment. The Adviser hereby appoints Pacific Investment Management
-----------
Company to act as sub-advisor to the Funds set forth in Schedule A (the "Funds")
for the periods and on the terms set forth in this Agreement. The Portfolio
Manager accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
In the event the Adviser wishes to retain the Portfolio Manager to render
investment advisory services to one or more series of the Trust other than the
Funds, the Adviser shall notify the Portfolio Manager in writing. If the
Portfolio Manager is willing to render such services, it shall notify the
Adviser in writing, whereupon such series shall become a Fund hereunder, and be
subject to this Agreement.
2. Portfolio Management Duties. Subject to the supervision of the Trust's
---------------------------
Board of Trustees and the Adviser, the Portfolio Manager will provide a
continuous investment program
<PAGE>
for the Funds and determine the composition of the assets of the Funds,
(with respect to the assets managed by the Portfolio Manager) including
determination of the purchase, retention, or sale of the securities, cash, and
other investments for the Funds. The Portfolio Manager will provide investment
research and analysis, which may consist of computerized investment methodology,
and will conduct a continuous program of evaluation, investment, sales, and
reinvestment of the Funds' assets by determining the securities and other
investments that shall be purchased, entered into, sold, closed, or exchanged
for the Funds, when these transactions should be executed, and what portion of
the assets of the Funds should be held in the various securities and other
investments in which it may invest, and the Portfolio Manager is hereby
authorized to execute and perform such services on behalf of the Funds. To the
extent permitted by the investment policies of the Funds, the Portfolio Manager
shall make decisions for the Funds as to foreign currency matters with respect
to the assets managed by the Portfolio Manager and make determinations as to the
retention or disposition of foreign currencies or securities or other
instruments denominated in foreign currencies, or derivative instruments based
upon foreign currencies, including forward foreign currency contracts and
options and futures on foreign currencies and shall execute and perform the same
on behalf of the Funds. The Portfolio Manager will provide the services under
this Agreement in accordance with each Fund's investment objective or
objectives, investment policies, and investment restrictions as stated in the
Trust's registration statement filed on Form N-1A with the SEC, as supplemented
or amended from time to time (the "Registration Statement"), copies of which
shall be sent to the Portfolio Manager by the Adviser. In performing these
duties, the Portfolio Manager:
(1) Shall conform with the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and regulations,
with any applicable procedures adopted by the Trust's Board of Trustees,
and with the provisions of the Registration Statement, as supplemented or
amended from time to time.
(2) Shall use reasonable efforts to manage each Fund so that it
qualifies as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code").
(3) Is responsible, in connection with its responsibilities under this
Section 2, for decisions with respect to the assets managed by the
Portfolio Manager to buy and sell securities and other investments for the
Funds, for broker-dealer and futures commission merchant ("FCM") selection,
and for negotiation of commission rates. The Portfolio Manager's primary
consideration in effecting a security or other transaction will be to
obtain the best execution for the Funds, taking into account the factors
specified in the Prospectus and Statement of Additional Information for the
Trust, as they may be amended or supplemented from time to time. Subject to
such policies as the Board of Trustees may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having
caused a Fund to pay a broker or dealer, acting as agent, for effecting a
portfolio transaction at a price in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction,
if the Portfolio Manager determines in good faith that such
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<PAGE>
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Portfolio Manager's
overall responsibilities with respect to the Funds and to its other clients
as to which it exercises investment discretion. To the extent consistent
with these standards, and in accordance with Section 11(a) of the
Securities Exchange Act of 1934, and subject to any other applicable laws
and regulations, the Portfolio Manager is further authorized to allocate
the orders placed by it on behalf of the Funds to the Portfolio Manager if
it is registered as a broker or dealer with the SEC, to its affiliate that
is registered as a broker or dealer with the SEC, or to such brokers and
dealers that also provide research or statistical research and material, or
other services to the Funds or the Portfolio Manager. Such allocation shall
be in such amounts and proportions as the Portfolio Manager shall determine
consistent with the above standards, and, upon request, the Portfolio
Manager will report on said allocation to the Adviser and the Board of
Trustees of the Trust, indicating the brokers or dealers to which such
allocations have been made and the basis therefor.
(4) May, on occasions when the purchase or sale of a security is
deemed to be in the best interest of a Fund as well as any other investment
advisory clients, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be
sold or purchased with those of its other clients where such aggregation is
not inconsistent with the policies set forth in the Registration Statement.
In such event, allocation of the securities so purchased or sold, as well
as the expenses incurred in the transaction, will be made by the Portfolio
Manager in a manner that is fair and equitable in the judgment of the
Portfolio Manager in the exercise of its fiduciary obligations to the Trust
and to such other clients.
(5) Will, in connection with the purchase and sale of securities for
each Fund, arrange for the transmission to the custodian for the Trust on a
daily basis, such confirmations, trade tickets, and other documents and
information, including, but not limited to, Cusip, Sedol, or other numbers
that identify securities to be purchased or sold on behalf of such Fund, as
may be reasonably necessary to enable the custodian to perform its
administrative and recordkeeping responsibilities with respect to such
Fund, and, with respect to portfolio securities to be purchased or sold
through the Depository Trust Company, will arrange for the automatic
transmission of the confirmation of such trades to the Trust's custodian.
(6) Will assist the custodian and recordkeeping agent(s) for the Trust
in determining or confirming, consistent with the procedures and policies
stated in the Registration Statement, the value of any portfolio securities
or other assets of each Fund for which the custodian and recordkeeping
agent(s) seek assistance from the Portfolio Manager or identify for review
by the Portfolio Manager.
(7) Will make available to the Trust and the Adviser, promptly upon
request, any of the Funds' investment records and ledgers as are necessary
to assist the Trust to comply with requirements of the 1940 Act and the
Advisers Act, as well as other
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<PAGE>
applicable laws, and will furnish to regulatory authorities having the
requisite authority any information or reports in connection with such
services which may be requested in order to ascertain whether the
operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
(8) Will regularly report to the Trust's Board of Trustees on the
investment program for each Fund and the issuers and securities represented
in the Fund's portfolio, and will furnish the Trust's Board of Trustees
with respect to each Fund such periodic and special reports as the Trustees
may reasonably request.
(9) Shall be responsible for making reasonable inquiries and for
reasonably ensuring that any employee of the Portfolio Manager has not, to
the best of the Portfolio Manager's knowledge:
(1) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising
out of such person's conduct as an underwriter, broker, dealer,
investment adviser, municipal securities dealer, government securities
broker, government securities dealer, transfer agent, or entity or
person required to be registered under the Commodity Exchange Act, or
as an affiliated person, salesman, or employee of any investment
company, bank, insurance company, or entity or person required to be
registered under the Commodity Exchange Act; or
(2) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent
jurisdiction from acting as an underwriter, broker, dealer, investment
adviser, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, or entity or person
required to be registered under the Commodity Exchange Act, or as an
affiliated person, salesman or employee of any investment company,
bank, insurance company, or entity or person to required be registered
under the Commodity Exchange Act, or from engaging in or continuing
any conduct or practice in connection with any such activity or in
connection with the purchase or sale of any security.
3. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed
----------------------------------
the Registration Statement and represents and warrants that, with respect to the
disclosure about the Portfolio Manager or information relating, directly or
indirectly, to the Portfolio Manager, such Registration Statement contains, as
of the date hereof, no untrue statement of any material fact and does not omit
any statement of a material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading. The Portfolio
Manager further represents and warrants that it is a duly registered investment
adviser under the Advisers Act and a duly registered investment adviser in all
states in which the Portfolio Manager is required to be registered. The Adviser
has received a current copy of the Portfolio Manager's Uniform Application for
Investment Adviser Registration on Form ADV, as filed with the SEC. The
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<PAGE>
Portfolio Manager agrees to provide the Adviser with current copies of the
Portfolio Manager's Form ADV, and any supplements or amendments thereto, as
filed with the SEC.
4. Expenses. During the term of this Agreement, the Portfolio Manager
--------
will pay all expenses incurred by it and its staff and for their activities in
connection with its services under this Agreement. The Portfolio Manager shall
not be responsible for any of the following:
(1) Expenses of all audits by the Trust's independent public
accountants;
(2) Expenses of the Trust's transfer agent(s), registrar, dividend
disbursing agent(s), and shareholder recordkeeping services;
(3) Expenses of the Trust's custodial services, including
recordkeeping services provided by the custodian;
(4) Expenses of obtaining quotations for calculating the value of each
Fund's net assets;
(5) Expenses of obtaining Portfolio Activity Reports for each Fund;
(6) Expenses of maintaining the Trust's tax records;
(7) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of the Adviser, its subsidiaries or affiliates;
(8) Taxes, if any, levied against the Trust or any of its series;
(9) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Funds;
(10) Costs, including the interest expenses, of borrowing money;
(11) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of
the Trust to its shareholders, the filing of reports and regulatory bodies,
the maintenance of the Trust's existence, and the registration of shares
with federal and state securities or insurance authorities;
(12) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(13) Costs of printing stock certificates, if any, representing Shares
of the Trust;
(14) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate
thereof;
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(15) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(16) Association membership dues;
(17) Extraordinary expenses of the Trust as may arise, including
expenses incurred in connection with litigation, proceedings and other
claims and the legal obligations of the Trust to indemnify its trustees,
officers, employees, shareholders, distributors, and agents with respect
thereto; and
(18) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
5. Compensation. For the services provided, the Adviser will pay the
------------
Portfolio Manager a fee accrued and computed daily and payable monthly, based
on the average daily net assets of each Fund as set forth on the Schedule A
attached hereto.
6. Seed Money. The Adviser agrees that the Portfolio Manager shall not be
----------
responsible for providing money for the initial capitalization of the Trust or
any Fund.
7. Compliance.
----------
(a) The Portfolio Manager agrees that it shall immediately notify the
Adviser and the Trust in the event (i) that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, and
(ii) upon having a reasonable basis for believing that a Fund has ceased to
qualify or might not qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code. The Portfolio Manager further agrees to notify
the Adviser and the Trust immediately of any material fact known to the
Portfolio Manager respecting or relating to the Portfolio Manager that is not
contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or of any statement contained therein that
becomes untrue in any material respect.
(b) The Adviser agrees that it shall immediately notify the Portfolio
Manager in the event (i) that the SEC has censured the Adviser or the Trust;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Adviser's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, and (ii) upon having a reasonable basis for believing that any Fund has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
8. Independent Contractor. The Portfolio Manager shall for all purposes
----------------------
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or
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authorized by the Adviser from time to time, have no authority to act for or
represent the Adviser in any way or otherwise be deemed its agent. The Portfolio
Manager understands that unless expressly provided herein or authorized from
time to time by the Trust, the Portfolio Manager shall have no authority to act
for or represent the Trust in any way or otherwise be deemed the Trust's agent.
9. Books and Records. In compliance with the requirements of Rule 31a-3
-----------------
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Funds are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's or the
Adviser's request, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. The Portfolio Manager further agrees to
preserve the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in that Rule.
10. Cooperation. Each party to this Agreement agrees to cooperate with each
-----------
other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC) in connection
with any investigation or inquiry relating to this Agreement or the Trust.
11. Services Not Exclusive. It is understood that the services of the
----------------------
Portfolio Manager are not exclusive, and nothing in this Agreement shall prevent
the Portfolio Manager (or its affiliates) from providing similar services to
other clients, including investment companies (whether or not their investment
objectives and policies are similar to those of the Funds) or from engaging in
other activities.
12. Liability. Except as provided in Section 13 and as may otherwise be
---------
required by the 1940 Act or other applicable law, the Adviser agrees that the
Portfolio Manager, any affiliated person of the Portfolio Manager, and each
person, if any, who, within the meaning of Section 15 of the Securities Act of
1933 (the "1933 Act") controls the Portfolio Manager shall not be liable for, or
subject to any damages, expenses, or losses in connection with, any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Portfolio Manager's duties, or by reason of
reckless disregard of the Portfolio Manager's obligations and duties under this
Agreement.
13. Indemnification. The Portfolio Manager agrees to indemnify and hold
---------------
harmless, the Adviser, any affiliated person within the meaning of Section
2(a)(3) of the 1940 Act ("affiliated person") of the Adviser and each person, if
any, who, within the meaning of Section 15 of the 1933 Act, controls
("controlling person") the Adviser (collectively, "PM Indemnified Persons")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), to which the Adviser or such affiliated
person or controlling person may become subject under the 1933 Act, 1940 Act,
the Advisers Act, under any other statute, at common law or otherwise, arising
out of the Portfolio Manager's responsibilities to the Trust which (i) may be
based upon any misfeasance, malfeasance, or nonfeasance by the Portfolio
Manager, any of its
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<PAGE>
employees or representatives, or any affiliate of or any person acting on behalf
of the Portfolio Manager (other than a PM Indemnified Person), or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering the Shares of the
Trust or any Fund, or any amendment thereof or any supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such a statement or omission was made in reliance upon information furnished to
the Adviser, the Trust, or any affiliated person of the Trust by the Portfolio
Manager or any affiliated person of the Portfolio Manager (other than a PM
Indemnified Person); provided, however, that in no case is the Portfolio
Manager's indemnity in favor of the Adviser or any affiliated person or
controlling person of the Adviser deemed to protect such person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties, or by reason of his reckless disregard of obligation and duties under
this Agreement.
The Adviser agrees to indemnify and hold harmless the Portfolio Manager,
any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act of
the Portfolio Manager and each person, if any, who, within the meaning of
Section 15 of the 1933 Act controls the Portfolio Manager (collectively,
"Adviser Indemnified Persons") against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which the
Portfolio Manager or such affiliated person or controlling person may become
subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other
statute, at common law or otherwise, arising out of the Adviser's
responsibilities as adviser of the Trust which (i) may be based upon any
misfeasance, malfeasance, or nonfeasance by the Adviser, any of its employees or
representatives or any affiliate of or any person acting on behalf of the
Adviser (other than an Adviser Indemnified Person) or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares of the Trust or any Fund,
or any amendment thereof or any supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, unless such statement or
omission was made in reliance upon written information furnished to the Adviser
or any affiliated person of the Adviser by the Portfolio Manager or any
affiliated person of the Portfolio Manager (other than an Adviser Indemnified
Person); provided, however, that in no case is the indemnity of the Adviser in
favor of the Portfolio Manager, or any affiliated person or controlling person
of the Portfolio Manager deemed to protect such person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties, or
by reason of his reckless disregard of obligations and duties under this
Agreement.
14. Duration and Termination. This Agreement shall take effect as of the
------------------------
date hereof, and shall remain in effect for two years from such date, and
continue thereafter on an annual basis with respect to a Fund; provided that
such annual continuance is specifically approved at least annually (a) by the
vote of a majority of the entire Board of Trustees of the Trust, or (b) by the
vote of a majority of the outstanding voting securities (as such term is defined
in the 1940 Act) of that Fund, and provided that continuance is also approved by
the vote of a majority of the Board of Trustees of the Trust who are not parties
to this Agreement or "interested persons" (as such term is defined in the 1940
Act) of the Trust, the Adviser, or the Portfolio Manager, cast in person
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<PAGE>
at a meeting called for the purpose of voting on such approval. This Agreement
may not be materially amended with respect to a Fund without the vote of a
majority of the outstanding voting securities (as such term is defined in the
1940 Act) of that Fund. This Agreement may be terminated:
(1) by the Trust at any time with respect to the services provided by
the Portfolio Manager, without the payment of any penalty, by vote of a
majority of the entire Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as such term is defined in
the 1940 Act) of the Trust or, with respect to a particular Fund, by vote
of a majority of the outstanding voting securities of that Fund, on 60
days' written notice to the Portfolio Manager;
(2) by the Portfolio Manager at any time, without the payment of any
penalty, upon 60 days' written notice to the Trust;
(3) by the Adviser at any time, without the payment of any penalty,
upon 60 days' written notice to the Portfolio Manager.
However, any approval of this Agreement by the holders of a majority of the
outstanding voting securities (as such term is defined in the 1940 Act) of a
particular Fund shall be effective to continue this Agreement with respect to
the Fund notwithstanding (a) that this Agreement has not been approved by the
holders of a majority of the outstanding voting securities of any other Fund or
other series of the Trust or (b) that this Agreement has not been approved by
the vote of a majority of the outstanding voting securities of the Trust, unless
such approval shall be required by any other applicable law or otherwise. This
Agreement will terminate automatically with respect to the services provided by
the Portfolio Manager in the event of its assignment, as that term is defined in
the 1940 Act, by the Portfolio Manager.
15. Agreement and Declaration of Trust. A copy of the Declaration of Trust
----------------------------------
of the Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts. Notice is hereby given that this Agreement is executed on behalf
of the Trustees of the Trust as Trustees and not individually, and that the
obligations of or arising out of this Agreement are not binding upon any of the
Trustees, officers or shareholders of the Trust individually, but are binding
only upon the assets and property of the Trust.
16. Proxies. Unless the Adviser gives written instructions to the contrary,
-------
the Portfolio Manager shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Fund may be invested by the
Portfolio Manager. The Portfolio Manager shall maintain a record of how the
Portfolio Manager voted and such record shall be available to the Adviser upon
its request. The Portfolio Manager shall use its best good faith judgement to
vote such proxies in a manner which best serves the interests of the Fund's
shareholders.
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<PAGE>
17. Notices. Any written notice required by or pertaining to this
-------
Agreement shall be personally delivered to the party for whim it is intended, at
the address stated below, or shall be sent to such party by prepaid first class
mail or by facsimile.
If to the Adviser: PIMCO Advisors L.P.
1345 Avenue of the Americas, 50th Flr.
New York, NY 10105-4800
Fax: 212-739-3948
Attention: Chief Legal Officer
cc:
If to the Sub-Advisor: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
Fax: 949-720-6403
Attention: Chief Administrative Officer
cc: Account Manager
18. Confidential Information. The Portfolio Manager shall maintain the
------------------------
strictest confidence regarding the business affairs of the Fund. Written
reports furnished by the Portfolio Manager to the Advisor shall be treated by
the Advisor and the Portfolio Manager as confidential and for the exclusive use
and benefit of the Advisor except as disclosure may be required by applicable
law.
19. Miscellaneous.
-------------
(a) This Agreement shall be governed by the laws of the State of New York,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder.
(b) The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) If any provisions of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise with regard to any party hereunder, such provisions with respect to
other parties hereto shall not be affected thereby.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
OPCAP ADVISORS
_____________________________ By:____________________________
Attest: Title:
Title:
PACIFIC INVESTMENT
MANAGEMENT COMPANY
______________________________ By:____________________________
Attest: Title:
Title
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<PAGE>
SCHEDULE A
----------
FUND ANNUAL FEE RATE*
- ---- ---------------
Managed Bond Fund** 25 bps
* The Annual Fee Rates are based on the average daily net assets of the
particular Fund taken separately.
** Based upon the percentage of assets managed.
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<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated February 12, 1999, relating to the
financial statements and financial highlights which appears in the December 31,
1998 Annual Reports to Shareholders of OCC Accumulation Trust, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights" and "Independent
Accountants" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
January 31, 2000
