0000889812-95-000452.txt : 19950829 0000889812-95-000452.hdr.sgml : 19950829 ACCESSION NUMBER: 0000889812-95-000452 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950823 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUEST FOR VALUE DUAL PURPOSE FUND INC CENTRAL INDEX KEY: 0000799029 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 133387182 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04797 FILM NUMBER: 95566157 BUSINESS ADDRESS: STREET 1: OPPENHEIMER TWR STREET 2: ONE WORLD FINANCIAL CTR CITY: NEW YORK STATE: NY ZIP: 10281-1098 BUSINESS PHONE: 2126677333 MAIL ADDRESS: STREET 1: OPPENHEIMER TOWER STREET 2: ONE WORLD FINANCIAL CENTER CITY: NEW YORK STATE: NY ZIP: 10281-1098 FORMER COMPANY: FORMER CONFORMED NAME: QFV DUAL PURPOSE FUND INC DATE OF NAME CHANGE: 19870111 N-30D 1 SEMI-ANNUAL REPORT Quest for Value Dual Purpose Fund, Inc. One World Financial Center New York, NY 10281 1-800-232-3863 The Other Funds of Quest for Value: EQUITY FUNDS ____________ Quest for Value Fund Global Equity Fund Opportunity Fund Small Capitalization Fund Growth and Income Fund FIXED INCOME FUNDS __________________ Taxable U.S. Government Income Fund Investment Quality Income Fund Global Income Fund Tax-Exempt National Tax-Exempt Fund California Tax-Exempt Fund New York Tax-Exempt Fund MONEY MARKET FUNDS __________________ Quest Cash Reserves: Taxable Primary Portfolio Government Portfolio Tax-Exempt General Municipal Portfolio California Municipal Portfolio New York Municipal Portfolio For information about any of the Quest for Value Funds, call your broker. QUEST FOR VALUE DUAL PURPOSE FUND, INC. AUGUST 7, 1995 DEAR SHAREHOLDER: The Dual Purpose Fund generated a total return on its portfolio of 9.1% in the second quarter, slightly below the 9.5% return of the Standard & Poor's 500 Index including dividends (S&P 500). For the first half, the Fund's return of 19.5% compared with 20.2% for the S&P 500. The Fund's slight underperformance in both periods reflected lower returns from securities other than common stocks owned by the Fund for income purposes, as well as our conservative investment posture. As equity prices climbed to new highs, we made extensive use of hedging techniques, reducing risk but dampening returns in a rising market. The Fund has been a consistently strong performer over time. Since its inception on February 13, 1987, the Fund has generated a compound annual total return of 15.6% on its portfolio, significantly exceeding the 11.8% return of the S&P 500. The Fund is a closed-end investment company with an equal number of Capital Shares and Income Shares. Capital Shares receive all the capital appreciation and absorb any losses from the Fund's entire portfolio, while Income Shares receive all net income. Both classes of shares performed well in the quarter and the half. PORTFOLIO ACTIVITY The Fund's performance was driven by excellent stock selection. The common stocks in the Fund's portfolio provided a total return of 25.5% in the half, easily outdistancing the S&P 500's total return of 20.2%. We did especially well with our investments in financial service company stocks, such as Citicorp, up 40% in the half; Federal Home Loan Mortgage Corp. (Freddie Mac), up 36%; Travelers Group, Inc., up 35%; and Mellon Bank Corp., up 36%. The investments we made in these companies during the past few years were not an interest rate play, but were based on the exceptional opportunities we saw in terms of growth and high returns on capital, combined with reasonable market valuations. Quite simply, we thought many quality financial stocks were cheap--and we continue to believe so. Many of these companies offer the prospect of favorable returns in both up and down interest rate cycles. Our performance was also aided by investments in stocks such as Triton Energy Corp., up 36% in the half, and McDonnell Douglas Corp., up 62%. During the second quarter, we established new positions in the common stocks of Champion International Corp., General Motors Corp. and Tenet Healthcare Corp. and increased the Fund's investments in American Express Co., Freeport McMoRan, Inc. and Freeport McMoRan Copper & Gold. We sold the Fund's holdings of Warner-Lambert Co. common stock and made minor reductions in several other positions. As of June 30, 1995, the Fund's assets were allocated 71% to common stocks, 17% to convertible securities, 9% to notes and bonds, and 3% to cash and equivalents. This represented a reduction in cash reserves during the second quarter and an increase in holdings of common stocks. We continued our portfolio hedging program, which had been reinstituted late in the first quarter as the stock market climbed to record price levels. As of June 30, 1995, 30.3% of the Fund's common stock holdings were hedged through the sale of Standard & Poor's 500 Index futures, our principal hedging instrument, and an additional 2.0% through other techniques. Hedging reduces risk, but could limit the Fund's returns in a rising market. Our use of S&P Index futures cost the Fund $10.9 million, or $.60 per Capital Share, in the second quarter's sharply higher market. Despite this cost, we believe that hedging makes sense at this time, given our cautious view of the stock market outlook. As of June 30, the market had risen for 1,722 days without a correction of 10% or more, the longest such advance in 35 years. Throughout the 1,722-day period, there has been a confluence of positive factors, including low inflation and rising corporate profits, and an almost total absence of negative factors. It has been a truly wonderful time to own stocks. We are not seers and do not attempt to predict turns in the stock market. However, we have some concern about the market's current high valuation levels. Moreover, enriched levels make markets vulnerable to financial shocks, which by definition are unpredictable. Within the equity-related segment of the portfolio, the Fund's convertible bonds generated a total return of 21.8% in the first half and its convertible preferred stocks provided a total return of 12.1%. The fixed income and preferred stock segment of the portfolio had a total return of 15.4% in the half. These segments are an important part of the Fund's current portfolio strategy, which is to combine relatively high-yielding fixed income and convertible securities with common stocks chosen primarily for their appreciation potential. CAPITAL SHARES The Capital Shares are intended for investors seeking capital appreciation, leverage and professional management at no cost (the management fees and expenses of the Fund are paid out of current income by the Income Shareholders). The net asset value (NAV) of the Capital Shares increased 11.5% in the second quarter and 25.3% in the first half, exceeding the S&P 500 for both periods. The Capital Shares tend to exaggerate the performance of the total portfolio, up or down, because of their leverage. At June 30, 1995, the Capital Shares had an NAV of $32.29 each and were entitled to the capital appreciation or depreciation on the entire net assets of the Fund, equal to $43.98 per Capital Share--thereby magnifying changes in value, up or down, of the Fund's portfolio by approximately 1.4 times. This leverage was tempered by our hedging program, described previously. The Capital Shares have been superior performers over time. From the Fund's inception on February 13, 1987 through June 30, 1995, they provided a compound annual pretax return of 18.2% (based on the NAV, after adjustment for short-term capital gains distributions and for taxes paid on net realized long-term capital gains retained by the Fund), far surpassing the 11.8% return of the S&P 500. This strong performance reflects a combination of above-average investment returns and the impact of leverage. The market price of the Capital Shares rose 11.8% in the second quarter and 24.1% in the first half, adjusted for short-term capital gains distributions. As of June 30, 1995, the Capital Shares were priced at $28.50 per share on the New York Stock Exchange, an 11.7% discount from NAV. The Capital Shares will be redeemable at their full NAV and any remaining discount will automatically disappear after January 31, 1997, when the Fund will either liquidate or, following a vote of shareholders, convert to an open-end fund. INCOME SHARES The Income Shares are intended for investors seeking high current income and relative safety of principal. They provided a total return (dividends paid and change in market price assuming the reinvestment of dividends) of 2.9% in the second quarter, matching the total return of a 10-year Treasury security maturing in February 1997, and 6.5% in the first half, slightly surpassing the Treasury security's return. Our goal is to deliver competitive returns that equal or exceed benchmark indices. From inception on February 13, 1987 through June 30, 1995, the compound annual total return on the Income Shares was 10.8% at market, assuming reinvestment of dividends, well in excess of the 7.8% compound return for a 10-year Treasury security maturing in February 1997. The Fund paid regular monthly dividends of $.10 per Income Share during the first half, plus an extra dividend of $.05 per share declared in April, for total dividends of $.65 per Income Share in the half. After the half, an extra of $.05 per share was declared in July, representing some of the additional income earned in the second quarter. The portfolio continues to generate income in excess of the $.10 monthly dividend rate. Consequently, we currently expect to pay total dividends--monthly dividends plus extras--in 1995 modestly exceeding the $1.34 per Income Share paid in 1994. We will inform you in future quarterly reports if there is any significant change in this outlook. The Income Shares had a market price of $12.25 each at June 30, 1995. They are scheduled to be redeemed on January 31, 1997 at $11.60 per share plus all accumulated and unpaid dividends. SUMMARY The stock market entered the third quarter with tremendous upward momentum, but appeared also to be vulnerable to negative news. In this uncertain environment, we continue to do what we do best: purchase companies with superior business characteristics at reasonable prices and thereby seek to preserve capital and outperform the popular indices regardless of the broad market direction. Thank you for investing with us at Quest for Value. We remain mindful of managing the Fund to generate favorable returns for both the Capital and Income shareholders. Sincerely, /s/ Joseph M. La Motta Joseph M. La Motta President QUEST FOR VALUE DUAL PURPOSE FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 1995
PRINCIPAL AMOUNT VALUE ------------ ------------ U.S. TREASURY BILLS--0.9% $ 6,900,000 5.815%, 7/13/95 (A) (cost--$6,886,606)............................ $ 6,886,606 ------------ REPURCHASE AGREEMENT--1.7% $13,056,000 Lehman Brothers 6.13%, 7/03/95 (proceeds at maturity: $13,062,669, collateralized by $12,280,000 par, $13,318,888 value, U.S. Treasury Notes, 8.625%, 6/15/97) (cost--$13,056,000)........................... $ 13,056,000 ------------ CORPORATE NOTES AND BONDS--9.1% Casinos/Gaming--1.6% $12,500,000 Harrah's Jazz Co. First Mortgage Notes 14.25%, 11/15/01.............................. $ 13,000,000 ------------ Chemicals--0.7% 5,000,000 IMC Fertilizer Group, Inc. Sr. Notes 10.75%, 6/15/03............................... 5,375,000 ------------ Insurance--1.1% 8,750,000 Reliance Group Holdings, Inc. Sr. Sub. Deb. 9.75%, 11/15/03............................... 8,487,500 ------------ Oil/Gas--1.6% 16,000,000 Triton Energy Corp. Sr. Sub. Disc. Notes Zero Coupon, 11/01/97......................... 13,040,000 ------------ Telecommunications--3.4% 15,000,000 Comcast Corp. Sr. Sub. Deb. 10.625%, 7/15/12.............................. 16,050,000 20,000,000 Nextel Communications, Inc. Sr. Sub. Disc. Notes 0.00%/11.50%, 9/01/03**..................................... 11,200,000 ------------ 27,250,000 ------------ PRINCIPAL AMOUNT VALUE ------------ ------------ Tobacco/Beverages/Food Products--0.7% $ 5,000,000 Chiquita Brands International, Inc. Sub. Notes 11.50%, 6/01/01............................... $ 5,150,000 ------------ Total Corporate Notes and Bonds (cost--$71,111,459)........................... $ 72,302,500 ------------ CONVERTIBLE CORPORATE NOTES AND BONDS--12.9% Airlines--2.9% $22,000,000 AMR Corp. Conv. Sub. Deb. 6.125%, 11/01/24.............................. $ 22,880,000 ------------ Drugs/Medical Products--2.7% 56,380,000 Alza Corp. Conv. Sub. Notes Zero Coupon, 7/14/14.......................... 21,424,400 ------------ Insurance--2.6% 20,000,000 Equitable Co. Conv. Sub. Notes 6.125%, 12/15/24.............................. 20,750,000 ------------ Oil/Gas--2.3% 12,970,545 Crusader Limited Conv. Sub. Notes 6.00%, 2/14/04 (B)............................ 18,335,162 ------------ Real Estate--2.4% 18,728,536 Security Capital Realty, Inc. Conv. Sub. Notes 12.00%, 6/30/14 (B)........................... 18,728,536 ------------ Total Convertible Corporate Notes and Bonds (cost--$92,051,904)........................... $102,118,098 ------------
SHARES VALUE ------------ ------------ CONVERTIBLE PREFERRED STOCKS--4.4% Insurance--1.3% 170,000 Travelers Group, Inc. $2.75 Conv. Pfd. Series B..................... $ 10,667,500 ------------ Tobacco/Beverages/Food Products--3.1% 1,250,000 Flagstar Companies, Inc. $2.28 Conv. Exch. Pfd......................... 24,375,000 ------------ Total Convertible Preferred Stocks (cost--$38,871,093)........................... $ 35,042,500 ------------
SHARES VALUE ------------ ------------ COMMON STOCKS--70.5% Aerospace--5.0% 515,000 McDonnell Douglas Corp.......................... $ 39,526,250 ------------ Automotive--1.8% 300,000 General Motors Corp............................. 14,062,500 ------------ Banking--9.1% 900,000 Citicorp (A).................................... 52,087,500 474,084 Mellon Bank Corp................................ 19,733,747 ------------ 71,821,247 ------------ Chemicals--6.4% 584,500 Hercules, Inc................................... 28,494,375 250,000 Monsanto Co..................................... 22,531,250 ------------ 51,025,625 ------------ Cosmetics/Toiletries--0.7% 79,800 Avon Products, Inc.............................. 5,346,600 ------------ Drugs/Medical Products--2.2% 300,000 Becton, Dickinson & Co.......................... 17,475,000 ------------ Electronics--3.1% 500,000 Arrow Electronics, Inc.*........................ 24,875,000 ------------ Healthcare Services--1.8% 1,000,000 Tenet Healthcare Corp.*......................... 14,375,000 ------------ Insurance--13.2% 454,500 AFLAC, Inc...................................... 19,884,375 400,000 EXEL Limited.................................... 20,800,000 77,400 Progressive Corp., Ohio......................... 2,970,225 600,000 Transamerica Corp............................... 34,950,000 600,000 Travelers Group, Inc............................ 26,250,000 ------------ 104,854,600 ------------ Metals/Mining--5.0% 646,250 Freeport McMoRan, Copper & Gold (Class A)....... 13,328,906 1,500,000 Freeport McMoRan, Inc........................... 26,437,500 ------------ 39,766,406 ------------ SHARES VALUE ------------ ------------ Miscellaneous Financial Services--8.9% 750,000 American Express Co............................. $ 26,343,750 600,000 Federal Home Loan Mortgage Corp................. 41,250,000 146,300 John Alden Financial Corp....................... 2,505,388 ------------ 70,099,138 ------------ Oil/Gas--2.8% 475,000 Triton Energy Corp.*............................ 22,028,125 ------------ Paper Products--3.3% 500,000 Champion International Corp..................... 26,062,500 ------------ Real Estate--2.7% 24,346 Security Capital Realty, Inc. (B)............... 21,473,235 ------------ Retail--1.1% 200,000 May Department Stores Co........................ 8,325,000 ------------ Telecommunications--3.4% 800,000 Sprint Corp..................................... 26,900,000 ------------ Total Common Stocks (cost--$371,543,704).......................... $558,016,226 ------------
TOTAL INVESTMENTS (cost--$593,520,766)............................... 99.5% $787,421,930 ----- ------------
CONTRACTS VALUE ------------ ------------ WRITTEN CALL OPTIONS OUTSTANDING--(0.1%) 2,000 Citicorp expiring July '95 @ $55 (premium received: $1,058,964)........ $ (725,000) ------------ Other Assets in Excess of Other Liabilities.................................. 0.6 $ 5,091,334 ----- ------------ TOTAL NET ASSETS..................................... 100.0% $791,788,264 ----- ------------ ----- ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- * Non-income producing security. ** Represents a step-up note which will receive 0.00% interest until 9/01/98, then will 'step-up' to 11.50% until maturity. NOTES TO SCHEDULE OF INVESTMENTS: (A) Securities segregated (full or partial) as collateral for written call options and futures contracts outstanding. The market value of such segregated securities is $18,461,606. (B) Restricted Securities:
DATE OF PAR VALUATION AS OF DESCRIPTION ACQUISITION AMOUNT SHARES UNIT COST JUNE 30, 1995 ----------------------------------- ----------- ----------- ------------ ---------- ------------- Crusader Limited 6.00%, 2/14/04.... 4/28/94 $12,970,545 -- $100 $141 Security Capital Realty, Inc. 12.00%, 6/30/14.................. 6/16/94 18,728,536 -- 94 100 Security Capital Realty, Inc. Common Stock..................... 8/02/93 -- 14,286 686 882 3/07/94 -- 10,060 686 882
QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1995 ASSETS Investments, at value (cost--$593,520,766)........ $787,421,930 Cash.............................................. 480 Dividends and interest receivable................. 4,617,763 Receivable for futures variation margin........... 401,700 Income tax receivable............................. 88,304 Prepaid expenses and other assets................. 188,665 ------------ Total assets................................... $792,718,842 LIABILITIES Written options outstanding, at value (premium received: $1,058,964)................. $ 725,000 Dividends payable to Income Shareholders.......... 106,766 Other payables and accrued expenses............... 98,812 ------------ Total liabilities.............................. 930,578 ------------ NET ASSETS (Shareholders' Equity) Net assets applicable to 18,004,302 Income Shares outstanding of $.01 par value.................. $210,407,530 Net assets applicable to 18,004,302 Capital Shares outstanding of $.01 par value.................. 581,380,734 ------------ Total Net Assets............................... $791,788,264 ------------ ------------
INCOME CAPITAL SHARES SHARES ------------ ------------ Net asset value per share......................... $11.69 $32.29 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1995 INVESTMENT INCOME: Interest........................................ $ 9,032,256 Dividends....................................... 6,384,059 ----------- Total investment income...................... $ 15,416,315 OPERATING EXPENSES: Investment advisory fees (note 2a).............. $ 2,068,833 Administration fees (note 2b)................... 364,178 Reports and notices to shareholders............. 79,944 Custodian fees.................................. 37,636 Transfer and dividend disbursing agent fees..... 33,003 Auditing, consulting and tax return preparation fees......................................... 30,194 Directors' fees and expenses.................... 18,967 Exchange fees................................... 17,211 Legal fees...................................... 3,439 Miscellaneous................................... 9,922 ----------- Total operating expenses..................... 2,663,327 ------------ Net investment income........................ 12,752,988 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, OPTIONS AND FUTURES--NET: Net realized gain on investments................ $39,095,544 Net realized gain on option transactions (note 1d).......................................... 100,694 Net realized loss on futures transactions (note 1e).......................................... (14,228,095) ----------- Net realized gain on investments, options and futures transactions........................ $ 24,968,143 Net change in unrealized appreciation (depreciation) on investments, options and futures...................................... 92,622,424 ------------ Net realized gain and change in net unrealized appreciation (depreciation) on investments, options and futures............ 117,590,567 ------------ Net increase in net assets resulting from operations................................... $130,343,555 ------------ ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1995 (1) 1994 -------------- ------------ Net investment income............................. $ 12,752,988 $24,415,397 Net realized gain on investments, options and futures transactions........................... 24,968,143 36,436,200 Net change in unrealized appreciation (depreciation) on investments, options and futures........................................ 92,622,424 (43,370,555) Provision for income taxes on long-term capital gains retained (note 1b)....................... -- (9,497,588) -------------- ----------- Net increase in net assets resulting from operations................................... 130,343,555 7,983,454 Dividends to Income Shareholders ($.65 and $1.335 per share, respectively)...... (11,702,797) (24,035,669) Distributions to Capital Shareholders ($.033 and $.389 per share, respectively)...... (594,142) (7,009,075) -------------- ----------- Total increase (decrease) in net assets......... 118,046,616 (23,061,290) Net Assets: Beginning of period............................. 673,741,648 696,802,938 -------------- ----------- End of period (including undistributed net investment income of $1,549,606 and $499,415, respectively)................................ $791,788,264 $673,741,648 -------------- ------------ -------------- ------------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- (1) Unaudited. QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF CHANGES IN UNDISTRIBUTED NET INVESTMENT INCOME, REALIZED AND UNREALIZED GAINS (LOSSES)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1995 (1) 1994 ------------ ------------ Net investment income available for distribution: Balance, beginning of period................... $ 499,415 $ 119,687 Net investment income.......................... 12,752,988 24,415,397 Dividends to Income Shareholders ($.65 and $1.335 per share, respectively).... (11,702,797) (24,035,669) ------------ ----------- Balance, end of period...................... $ 1,549,606 $ 499,415 ------------ ----------- ------------ ----------- Accumulated net realized gains: Balance, beginning of period................... $156,215,731 $136,286,194 Net realized gain on investments, options and futures transactions......................... 24,968,143 36,436,200 Provision for income taxes on long-term capital gains retained (note 1b)..................... -- (9,497,588) Distributions to Capital Shareholders ($.033 and $.389 per share, respectively).... (594,142) (7,009,075) ------------ ----------- Balance, end of period...................... $180,589,732 $156,215,731 ------------ ------------ ------------ ------------ Net unrealized appreciation (depreciation) on investments, options and futures: Balance, beginning of period................... $ 99,310,654 $142,681,209 Net change in unrealized appreciation (depreciation) on investments, options and futures...................................... 92,622,424 (43,370,555) ------------ ----------- Balance, end of period...................... $191,933,078 $99,310,654 ------------ ----------- ------------ -----------
See accompanying notes to financial statements. -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1995 (1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Quest for Value Dual Purpose Fund, Inc. (the 'Fund') is a diversified, closed-end, 'dual-purpose' investment company. The Fund commenced investment operations on February 13, 1987. Quest for Value Advisors (the 'Adviser'), a majority-owned (99%) subsidiary of Oppenheimer Capital, serves as the Fund's investment adviser. Oppenheimer Capital (the 'Administrator') serves as the Fund's administrator. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements: (a) VALUATION OF INVESTMENTS Investment securities listed on a national securities exchange and securities traded in the over-the-counter National Market System are valued at the last reported sale price on the valuation date; if there are no such reported sales, the securities are valued at their last quoted bid price. Other securities traded over-the-counter and not part of the National Market System are valued at the last quoted bid price. Investment debt securities (other than short-term obligations) are valued each day by an independent pricing service 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. The ability of issuers of debt instruments to meet their obligations may be affected by economic developments in a specific industry or region. Any securities or other assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by the Fund's Board of Directors. (b) FEDERAL INCOME TAXES It is the Fund's intention to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable ordinary income to its shareholders; accordingly, no Federal income tax provision is required. Net realized long-term capital gains, if any, on security transactions are retained and applicable taxes thereon will be accrued at the end of the Fund's fiscal year. (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 are accreted or amortized to interest income over the lives of the respective securities. (d) OPTION ACCOUNTING POLICIES When the Fund writes a call or put option, the premium received is included in the Fund's Statement of Assets and Liabilities as an asset and an equivalent amount is recognized as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The current market value of a traded option is the last sale price or, in the absence of a sale, the last asked price. If the option expires on its stipulated expiration date or if the Fund enters into a closing purchase transaction, the Fund will realize a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option will be extinguished. If a call option which the Fund has written is exercised, the Fund realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a put option which the Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which the Fund purchases upon exercise of the option. (e) FUTURES ACCOUNTING POLICIES A futures contract is an agreement between two parties to buy and sell a financial instrument at a set price on a future date. Upon entering into such a contract the Fund is required to pledge to the broker an amount of cash or U.S. Government securities equal to the minimum 'initial margin' requirements of the exchange. At June 30, 1995, the Fund pledged $6,900,000 U.S. Treasury Bills with a value of $6,886,606 as initial margin for such futures contracts. Pursuant to the contracts, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contracts. Such receipts or payments are known as 'variation margin,' and are recorded by the Fund as unrealized appreciation or depreciation. When the contracts are closed, the Fund records a realized gain or loss equal to the difference QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1995 between the value of the contracts at the time they were opened and the value at the time they were closed and reverses any unrealized appreciation or depreciation previously recorded. Futures Contracts open at June 30, 1995 are as follows:
UNREALIZED DESCRIPTION CONTRACTS SHORT VALUE EXPIRATION LOSS -------------------------------- --------- ------------ ----------- ---------- Standard & Poor's 500 Index..... 618 $169,069,545 Sept. '95 $2,302,050
(F) REPURCHASE AGREEMENTS The Fund enters into repurchase agreements as part of its investment program. The Fund's custodian takes possession of collateral pledged by the counterparty. The collateral is marked-to-market daily to ensure that the value, plus accrued interest, is at least equal to the repurchase price. In the event of default of the obligor to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. (G) DIVIDENDS AND DISTRIBUTIONS The Fund distributes its net investment income to holders of the Income Shares at a fixed monthly rate (currently $.10 a share) with any excess net investment income distributed on a quarterly basis. Income Shares are entitled to cumulative dividends in an amount equivalent to net investment income with a minimum annual rate of $.875 per share. To the extent that any such minimum cumulative dividend cannot be satisfied from net investment income, it will be paid from any tax basis net realized short-term or long-term capital gains. Capital Shares will not be entitled to receive dividends from net investment income as long as Income Shares are outstanding. The Fund declared dividends of $.65 per Income Share during the six months ended June 30, 1995. To the extent not needed to pay the Income Shares' minimum cumulative dividends, distributions from tax basis net realized short-term capital gains, if any, may be paid to holders of the Capital Shares. The Fund will not distribute tax basis net realized long-term capital gains except to the limited extent described previously. Dividends and distributions to shareholders are recorded on the ex-dividend date. On January 31, 1997 Income Shares will be redeemed at $11.60 per share, plus accumulated and unpaid dividends. Should assets be insufficient to redeem the Income Shares at such amount, the total net assets of the Fund would be distributed to Income Shareholders on a pro-rata basis. (2) INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS WITH AFFILIATES (a) The investment advisory fee is payable monthly to the Adviser and is computed on the average weekly net assets of the Fund as of the close of business each week at the following annual rates: .75% on the first $200 million; and .50% on net assets in excess of $200 million. (b) The administration fee is payable monthly to the Administrator and is computed on the average weekly net assets of the Fund as of the close of business each week at the annual rate of .10%. (c) Total brokerage commissions paid by the Fund during the six months ended June 30, 1995 amounted to $371,956 of which Oppenheimer & Co., Inc., an affiliate of the Adviser, received $95,194. (3) PURCHASES AND SALES OF SECURITIES During the six months ended June 30, 1995, purchases and sales of investment securities, other than short-term securities and options, aggregated $147,723,049 and $179,364,190, respectively. QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JUNE 30, 1995 The following table summarizes activity in written option contracts during the six months ended June 30, 1995:
CONTRACTS PREMIUMS --------- ---------- Option contracts written: Outstanding at beginning of period.............................................. 1,870 $ 997,917 Options written..................................... 8,130 3,244,575 Options terminated in closing purchase transactions...................................... (682) (169,064) Options exercised................................... (7,318) (3,014,464) --------- ---------- Option contracts written: Outstanding at end of period.............................................. 2,000 $1,058,964 --------- ---------- --------- ----------
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL INCOME TAX PURPOSES At June 30, 1995, the cost of investments for Federal income tax purposes was $593,659,280. Aggregate gross unrealized appreciation (all securities in which there is an excess of value over tax cost) amounted to $202,892,266 and aggregate gross unrealized depreciation (all securities in which there is an excess of tax cost over value) amounted to $9,129,616, resulting in net unrealized appreciation of $193,762,650. (5) CAPITAL STOCK The Fund is authorized to issue 20 million Capital Shares and 20 million Income Shares at $.01 par value, respectively. Each class of shares has 18,004,302 issued and outstanding, representing $180,043 at par and $208,677,881 paid-in-surplus. (6) QUARTERLY RESULTS OF OPERATIONS
REALIZED AND UNREALIZED NET GAIN (LOSS) ON INVESTMENTS, INVESTMENT INVESTMENT OPTIONS AND FUTURES--NET INCOME INCOME (AFTER PROVISION FOR INCOME TAXES) ----------------------- ----------------------- -------------------------------------- PER PER QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE ----------------------- ----------- ----- ----------- ----- ------------ ------ March 31, 1995......... $ 7,638,860 $0.43 $ 6,365,976 $0.35 $ 57,584,502 $ 3.20 June 30, 1995.......... 7,777,455 0.43 6,387,012 0.36 60,006,065 3.33 ----------- ----- ----------- ----- ------------ ------ $15,416,315 $0.86 $12,752,988 $0.71 $117,590,567 $ 6.53 ----------- ----- ----------- ----- ------------ ------ ----------- ----- ----------- ----- ------------ ------ March 31, 1994......... $ 6,654,116 $0.37 $ 5,372,817 $0.30 $ (7,528,343) $(0.42) June 30, 1994.......... 7,076,495 0.39 5,781,334 0.32 8,230,557 0.46 September 30, 1994..... 6,969,837 0.39 5,643,562 0.32 10,890,082 0.61 December 31, 1994...... 8,916,723 0.50 7,617,684 0.42 (28,024,239) (1.56) ----------- ----- ----------- ----- ------------ ------ $29,617,171 $1.65 $24,415,397 $1.36 $(16,431,943) $(0.91) ----------- ----- ----------- ----- ------------ ------ ----------- ----- ----------- ----- ------------ ------
(7) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS At June 30, 1995, the Fund had outstanding written options and futures contracts. These contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. If these contracts are traded through a regulated exchange, the counterparty risk is generally eliminated since the exchange interposes itself into the transaction. If, however, the contracts are traded in the over-the-counter markets, counterparty credit risk can exist. During the six months ended June 30, 1995, the Fund made use of a strategy known as 'dynamic hedging'. Dynamic hedging is an attempt to protect against declines in the market value of its portfolio through the sale of stock index futures. It's purpose is to achieve a pre-specified level of downside protection while at the same time retaining exposure to the upside potential of the portfolio. (8) SUBSEQUENT EVENTS On July 7, 1995, a dividend of $.15 per share or approximately $2,700,645 was declared to Income Shareholders payable July 31, 1995 to shareholders of record on July 17, 1995. On August 4, 1995, a dividend of $.10 per share or approximately $1,800,430 was declared to Income Shareholders payable August 31, 1995 to shareholders of record on August 14, 1995. QUEST FOR VALUE DUAL PURPOSE FUND, INC. FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------------------------------- 1995 (1) 1994 1993 1992 1991 1990 ------------ ------------ ------------ ------------ ------------ ------------ PER SHARE OPERATING PERFORMANCE: Income Shares: Net Asset Value, Beginning of Period..................... $ 11.63 $ 11.61 $ 11.61 $ 11.60 $ 11.60 $ 11.61 Net investment income........ 0.71 1.36 1.30 1.35 1.37 1.57 Dividends from net investment income..................... (0.65) (1.34) (1.30) (1.34) (1.37) (1.58) ------------ ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period..................... $ 11.69 $ 11.63 $ 11.61 $ 11.61 $ 11.60 $ 11.60 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Market Value, End of Period.. $ 12.25 $ 12.125 $ 13.25 $ 13.00 $ 13.375 $ 12.875 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Return (2).. 6.5% 1.8% 12.3% 7.4% 15.0% 11.9% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Capital Shares: Net Asset Value, Beginning of Period..................... $ 25.79 $ 27.09 $ 26.29 $ 22.59 $ 16.43 $ 18.05 Net realized and unrealized gain (loss) on investments, options and futures transactions............... 6.53 (0.38) 2.45 6.09 6.77 (0.91) Provision for corporate income taxes on net realized long-term capital gains...................... -- (0.53) (1.43) (1.10) (0.60) (0.51) Distributions from net realized short-term capital gains...................... (0.03) (0.39) (0.22) (1.29) (0.01) (0.20) ------------ ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period..................... $ 32.29 $ 25.79 $ 27.09 $ 26.29 $ 22.59 $ 16.43 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Market Value, End of Period.. $ 28.50 $ 23.00 $ 23.75 $ 23.00 $ 17.625 $ 12.00 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Return (3).. 24.1% 0.9% 10.5% 44.6% 52.1% (9.7%) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period.... $791,788,264 $673,741,648 $696,802,938 $682,373,943 $615,726,914 $504,739,067 ------------ ------------ ------------ ------------ ------------ ------------ Ratio of Operating Expenses to Average Net Assets...... 0.73%(4,5) 0.74% 0.74% 0.74% 0.77% 0.81% ------------ ------------ ------------ ------------ ------------ ------------ Ratio of Net Investment Income to Average Net Assets..................... 3.50%(4,5) 3.47% 3.29% 3.61% 4.39% 5.50% ------------ ------------ ------------ ------------ ------------ ------------ Portfolio Turnover Rate...... 21% 45% 51% 45% 62% 78% ------------ ------------ ------------ ------------ ------------ ------------ Number of each class of Income and Capital Shares outstanding at the end of period..................... 18,004,302 18,004,302 18,004,302 18,004,302 18,004,302 18,004,302 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(1) Unaudited. (2) Change in market price assuming reinvestment of dividends on payable date (at market). (3) Change in market price assuming reinvestment of short-term capital gains on payable date and taxes paid on long-term capital gains on year end (both at market). (4) Average net assets for the six months ended June 30, 1995 were $734,391,159. (5) Annualized. ABOUT QUEST FOR VALUE DUAL PURPOSE FUND, INC. The Quest for Value Dual Purpose Fund, Inc. (the 'Fund') is a closed-end dual-purpose investment company which invests primarily in stocks and corporate notes and bonds. The Fund has two classes of shares: Capital Shares (NYSE symbol KFV) for those seeking long-term growth of capital; and Income Shares (NYSE symbol KFV Pr.) for those seeking current and long-term growth of income. Capital Share investors provided 50% of the Fund's capital at inception in 1987, yet receive all of the portfolio's capital appreciation (depreciation). Income Share investors, on the other hand, initially provided 50% of the Fund's capital, but receive all of the portfolio's net investment income. Consequently, investors in each class of shares have more assets working for their respective investment goals than they have contributed. After redemption of the Income Shares on January 31, 1997, at initial net asset value of $11.60, plus any accumulated and unpaid dividends, Capital Shareholders will own all remaining assets. Thereafter, the Fund will either liquidate or submit to the Capital Shareholders a proposal to continue as an open-end investment company (i.e., a mutual fund). SHARE COMPARISON The following is a brief summary of certain rights for each class of shares of the Fund: CAPITAL SHARES INCOME SHARES o Generally will be entitled to all o Entitled to all the Fund's Net capital appreciation and subject to Investment Income. all depreciation from 100% of the assets of the Fund. -------------------------------------------------------------------------------- o No distributions from Net Investment o Minimum cumulative dividend of $.875 Income as long as Income Shares are annually. outstanding. -------------------------------------------------------------------------------- o Bear none of the Fund's expenses. o Potential for growing income stream. 1995 dividends amounted to $.65 through June 30, 1995 -------------------------------------------------------------------------------- o NYSE symbol KFV. o NYSE symbol KFV Pr.
DIVIDEND REINVESTMENT PLAN Income Shareholders may participate in the dividend reinvestment plan (the 'Plan') by calling the Plan Agent, State Street Bank and Trust Company at 1-800-232-3863 if the shares are held in your own name. If shares are held in nominee name (in the name of your brokerage firm, bank or other institution), contact your nominee and request that they either participate on your behalf or re-register the shares in your name. The Plan, in brief, works like this: On the payable date for a dividend the Plan Agent will pool the dividends payable to participants in the Plan. Shortly thereafter, the Plan Agent will purchase shares on the open market on behalf of the Plan. When completed, they will allocate the shares to each participant. Each participant will pay the same purchase cost plus a proportionate share of the brokerage commissions. The administrative expenses of the Plan will be paid by the Fund. Participation in the Plan in no way reduces or eliminates tax liability on dividends reinvested. Participants may withdraw from the Plan at any time by contacting the Plan Agent. QUEST FOR VALUE DUAL PURPOSE FUND, INC. DIRECTORS AND OFFICERS Joseph M. La Motta Director, President (1) Eugene D. Brody Director (2) George D. Langdon, Jr. Director (1) George Loft Director (2) Pamela W. McCann Director (3) Dr. Thomas W. Murnane Director (3) Lawrence Sherman Director (1) George A. Long Vice President Bernard H. Garil Vice President Sheldon Siegel Treasurer Thomas E. Duggan Secretary Leslie Klein Assistant Treasurer Deborah Kaback Assistant Secretary
INVESTMENT ADVISER Quest for Value Advisors One World Financial Center New York, NY 10281 CUSTODIAN, TRANSFER AND SHAREHOLDER SERVICING AGENT State Street Bank and Trust Company P.O. Box 366 Boston, MA 02101 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 1177 Avenue of Americas New York, NY 10036 KEY: (1) Director for both Capital and Income Shares (2) Director for Capital Shares (3) Director for Income Shares This report, including the financial information herein, is transmitted to the shareholders of Quest for Value Dual Purpose Fund, Inc. for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report. QUEST FOR VALUE DUAL PURPOSE FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 1995 [LOGO] MANAGED BY QUEST FOR VALUE ADVISORS