-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZ0INRy6OA3ipeu8LjnR1M8HZoTF24eYDQOb5ND39MZyqfmj/rVzGawxax26h1yY pjkfSCmQZ7CwMy9LGS0GAg== 0000889812-96-000557.txt : 19960529 0000889812-96-000557.hdr.sgml : 19960529 ACCESSION NUMBER: 0000889812-96-000557 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960528 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUEST FOR VALUE DUAL PURPOSE FUND INC CENTRAL INDEX KEY: 0000799029 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133387182 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-04797 FILM NUMBER: 96572812 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-30B-2 1 QUARTERLY REPORT QUEST FOR VALUE DUAL PURPOSE FUND, INC. MAY 2, 1996 QUEST FOR VALUE DUAL PURPOSE FUND, INC. One World Financial Center New York, NY 10281 1-800-600-5487 DEAR SHAREHOLDER: The Dual Purpose Fund had a strong first quarter, generating a 7.9% total return on its portfolio, exceeding the 5.4% return of the Standard & Poor's 500 Index including dividends (S&P 500). Since its inception on February 13, 1987, the Fund has produced a compound annual total return on its portfolio of 16.2%, surpassing by a wide margin the 13.0% 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 delivered positive returns in the quarter. INVESTMENT PHILOSOPHY Although the Fund invests primarily in common stocks, it also buys convertible securities and nonconvertible bonds, notes and preferred stock. When purchasing stocks, it employs the traditional OpCap Advisors investment approach--that is, buying superior businesses with good managements at modest valuations. It focuses, however, on a relatively limited number of stocks. As of March 31, 1996, just over half the net assets of the Fund were invested in the common stocks of ten companies. This approach is designed to take full advantage of our intensive research process and strict value criteria by making our positions large enough to have a significant impact on investment results. Our investment style specifically attempts to avoid forecasting the market or the economy. We analyze individual companies and try to understand where their businesses are going over the next several years, not where the stock market is heading during the next quarter. We believe the biggest risk in any investment purchase is the valuation, or price paid. Therefore, we focus on buying companies that are priced inexpensively relative to our analysis of their prospects. We try to control risk by owning superior businesses with strong operating/financial managements. Experience shows that good businesses tend to remain good businesses and can often increase their economic value for extended periods. For that reason, we are long-term investors, typically holding a company's stock for a number of years. UCAR International, Inc., one of the Fund's larger holdings, representing 4.5% of net assets at the end of the quarter, is an example of the superior business qualities we look for in a company. UCAR produces graphite electrodes, used primarily for the production of steel in electric arc furnaces, mainly in 'mini-mills.' Because UCAR dominates its market and is the low-cost producer, it earns high returns on assets--about a 47% operating return on net operating assets versus about 18% for the average non-financial company. Depreciation has exceeded capital expenditures each of the past five years, and since the company is currently operating at only 70% of capacity and has no need to expand facilities, we expect this to continue for the next several years. Consequently, all earnings should be available as free cash flow. The company is expected to maintain double-digit sales growth through increased unit sales and pricing flexibility. Moreover, 10% annual sales growth should produce operating profit growth of 15% (as gross margins expand) and earnings growth of 20% (as free cash flow is used to pay down debt). Finally, even though the steel business is cyclical, UCAR's sales are expected to increase as mini-mills continue to gain market share. The price of UCAR common stock rose about 15% in the first quarter, making it one of the better performing securities owned by the Fund. We believe UCAR's superior attributes, coupled with its reasonable price of approximately 13 times anticipated 1996 earnings, represent an opportunity to own a good business selling at a modest valuation. PORTFOLIO HOLDINGS AND CHANGES As of March 31, 1996, the Fund's assets were allocated 73% to common stocks, 12% to securities convertible into common stocks, 14% to bonds, notes and preferred stock, and 1% to cash and equivalents. The Fund's five largest equity and equity related holdings as of March 31, 1996 were Freeport McMoRan Copper & Gold common stock (Class A and B), Triton Energy Corp. (our Triton position is a combination of Triton common stock and Crusader, Ltd. subordinated notes convertible into Triton stock), AMR Corp. convertible debentures, Mid Ocean Ltd. common stock, and WorldCom, Inc. common stock. The common stocks in the Fund's portfolio produced a total return of 7.8% in the quarter, exceeding the 5.4% return of the S&P 500. During the quarter, we established new positions in the common stocks of such companies as Ace, Ltd., Canadian Pacific, Ltd., Frontier Corp. and PartnerRe, Ltd. Some of the positions that were eliminated included Citicorp, Federal Home Loan Mortgage Corp. (Freddie Mac), McDonnell Douglas Corp. and Travelers Group, Inc. The Fund owns high-yield bonds to generate income for the Income Shares as well as to provide appreciation potential for the Capital Shares. During the quarter, we established new positions in the bonds of American Radio Systems and WestPoint Stevens, Inc., and sold our investments in the debt securities of Harrah's Jazz Co. and Triton Energy Corp. The Fund's holdings of bonds and preferred stock provided a total return of 7.2% in the quarter. 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 gained 9.6% in the first quarter. At March 31, 1996, the Capital Shares had an NAV of $36.88 each and were entitled to the capital appreciation or depreciation on the entire net assets of the Fund, equal to $48.54 per Capital Share--thereby magnifying changes in value, up or down, of the Fund's portfolio by approximately 1.3 times. The Capital Shares have provided returns well in excess of the S&P 500 over extended periods. From the Fund's inception on February 13, 1987 through March 31, 1996 they provided a compound annual pretax return of 18.9% (based on the NAV, after adjustment for short-term capital gains distributions and for federal taxes paid on net realized long-term capital gains retained by the Fund), handily beating the 13.0% return of the S&P 500. This excellent performance reflects a combination of above-average investment returns and the impact of leverage. The market price of the Capital Shares on the New York Stock Exchange increased 7.1% in the quarter. As of March 31, 1996, the market price of the Capital Shares was $34.125 per share, a 7.5% 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. The Fund paid regular monthly dividends of $.10 per Income Share in the first quarter, or a total of $.30 per share for the three-month period. The Income Shares' total return (dividends paid and change in market price assuming the reinvestment of dividends) was 1.5% in the quarter, exceeding the 1.2% total return of a 10-year Treasury security maturing in February 1997. From inception on February 13, 1987 through March 31, 1996, the compound annual total return on the Income Shares was 10.5% at market, assuming reinvestment of dividends, well above the 7.8% compound return for a 10-year Treasury security maturing in February 1997. The Income Shares had a market price of $11.875 each at March 31, 1996. They are scheduled to be redeemed on January 31, 1997 at $11.60 per share plus all accumulated and unpaid income. That income will consist primarily of income earned by the Fund in January 1997, since the Fund will declare a dividend in December 1996 which will include almost all of the income, if any, earned but not previously paid through year-end 1996. OUTLOOK The 1996 first quarter was the fifth in a row of strongly rising equity prices and extended the period without as much as a 10% stock market correction to five-and-one-half years, the longest in this century. It is beginning to sound trite that risks in the stock market are rising--that the market may be overdue for a correction, yet the stocks we own are still attractively priced. In this environment, as always, we remain dedicated to preserving capital and generating favorable returns by investing in undervalued quality securities. Since we can't predict market turns, we will continue to do what we do best, pick stocks. Thank you for investing with us. We appreciate the trust you have placed in the Dual Purpose Fund and OpCap Advisors, its manager, and will continue to work hard to merit that trust. Sincerely, /s/ Joseph M. La Motta ---------------------------- Joseph M. La Motta President QUEST FOR VALUE DUAL PURPOSE FUND, INC. SCHEDULE OF INVESTMENTS AND NET ASSETS (UNAUDITED) MARCH 31, 1996
PRINCIPAL AMOUNT VALUE (A) - ------------ ------------ REPURCHASE AGREEMENT--3.3% $29,236,000 Lehman Brothers 5.375%, 4/01/96, (dated 3/29/96, proceeds at maturity: $29,249,095, collateralized by $27,940,000 par, $29,820,362 value, U.S. Treasury Notes, 8.25%, 7/15/98).. $ 29,236,000 ------------ CORPORATE NOTES AND BONDS--12.2% Casinos/Gaming--5.4% $19,000,000 Trump Holdings & Funding Sr. Sub. Notes 15.50%, 6/15/05....................... $ 21,755,000 23,000,000 Trump Plaza Funding First Mortgage Notes 10.875%, 6/15/01...................... 25,530,000 ------------ 47,285,000 ------------ Media/Broadcasting--3.5% 31,000,000 American Radio Systems Corp. Sr. Sub. Notes 9.00%, 2/01/06........................ 30,380,000 ------------ Textiles--3.3% 29,000,000 WestPoint Stevens, Inc. Sr. Sub. Deb. 9.375%, 12/15/05...................... 28,637,500 ------------ Total Corporate Notes and Bonds $106,302,500 ------------ CONVERTIBLE CORPORATE NOTES AND BONDS--10.0% Airlines--5.5% $41,500,000 AMR Corp. Conv. Sub. Deb. 6.125%, 11/01/24...................... $ 47,828,750 ------------ Oil/Gas--2.4% 12,970,545 Crusader Ltd. Conv. Sub. Notes 6.00%, 2/14/04(B)..................... 21,237,970 ------------ PRINCIPAL AMOUNT VALUE (A) - ------------ ------------ Real Estate--2.1% $18,442,153 Security Capital Realty, Inc. Conv. Sub. Deb. 12.00%, 6/30/14 (B)................... $ 18,425,841 ------------ Total Convertible Corporate Notes and Bonds....................... $ 87,492,561 ------------ SHARES - ------------ PREFERRED STOCK--1.3% Entertainment 310,000 Time Warner Financing Trust $1.24 Pfd................................... $ 11,547,500 ------------ CONVERTIBLE PREFERRED STOCK--2.0% Tobacco/Beverages/Food Products 1,242,200 Flagstar Companies, Inc. $2.25 Conv. Exch. Pfd................. $ 17,080,250 ------------ COMMON STOCKS--73.1% Automotive--5.1% 1,036,200 Varity Corp.*........................... $ 44,815,650 ------------ Casinos/Gaming--2.1% 640,200 Trump Hotels & Casino Resorts, Inc.*.... 18,725,850 ------------ Conglomerates--5.0% 2,200,000 Canadian Pacific, Ltd................... 44,000,000 ------------ Electronics--4.5% 1,019,400 UCAR International Inc.*................ 39,629,175 ------------ Insurance--22.5% 1,000,000 Ace, Ltd................................ 44,625,000 652,700 EXEL Ltd................................ 45,036,300 156,900 Horace Mann Educators Corp.............. 4,785,450 1,210,000 Mid Ocean Ltd........................... 46,736,250 1,035,000 PartnerRe Ltd........................... 30,791,250 550,000 Progressive Corp., Ohio................. 24,543,750 ------------ 196,518,000 ------------ Lodging--1.6% 1,010,000 Host Marriot Corp.*..................... 13,635,000 ------------ Metals/Mining--6.1% Freeport McMoRan, Copper & Gold 646,250 (Class A)............................... 19,872,187 1,052,601 (Class B)............................... 33,288,507 ------------ 53,160,694 ------------
SHARES VALUE (A) - ------------ ------------ Miscellaneous Financial Services--0.9% 339,200 Countrywide Credit Industries, Inc...... $ 7,504,800 ------------ Oil/Gas--3.2% 500,000 Triton Energy Ltd.*..................... 27,875,000 ------------ Real Estate--2.9% 24,346 Security Capital Realty, Inc. (B)....... 25,443,592 ------------ Telecommunications--9.4% 1,154,900 Frontier Corp........................... 36,379,350 1,002,500 WorldCom, Inc.*......................... 46,115,000 ------------ 82,494,350 ------------ SHARES VALUE (A) - ------------ ------------ Tobacco/Beverages/Food Products--9.8% 500,000 Philip Morris Companies, Inc............ $ 43,875,000 1,300,000 UST, Inc................................ 41,437,500 ------------ 85,312,500 ------------ Total Common Stocks..................... $639,114,611 ------------ TOTAL INVESTMENTS....................... 101.9% $890,773,422 Other Liabilities in Excess of Other Assets.......................... (1.9) (16,784,015) ----- ------------ TOTAL NET ASSETS........................ 100.0% $873,989,407 ----- ------------ ----- ------------
- -------------------------------------------------------------------------------- * Non-income producing security. NOTES TO SCHEDULE OF INVESTMENTS AND NET ASSETS: (A) Each listed security is valued at the last reported sales price. Any security having a remaining maturity of sixty days or less is valued at amortized cost or amortized value, which approximates market. (B) Restricted Securities (The Fund will not bear any costs, including those involved in registration under the Securities Act of 1933, in connection with the disposition of these securities.):
FAIR VALUE AS DATE OF PAR AVERAGE OF DESCRIPTION ACQUISITION AMOUNT SHARES COST MARCH 31, 1996 - ----------------------------------- ----------- ----------- ------------ ------- -------------- Crusader Limited 6.00%, 2/14/04.... 4/28/94 $12,970,545 -- $ 100 $ 164 Security Capital Realty, Inc. 12.00%, 6/30/14.................. 6/16/94 18,442,153 -- 94 100 Security Capital Realty, Inc. Common Stock..................... 8/02/93 -- 24,346 699 1,045
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) Jeffrey C. Whittington Vice President Bernard H. Garil Vice President Sheldon Siegel Treasurer Thomas E. Duggan Secretary Leslie Klein Assistant Treasurer Deborah Kaback Assistant Secretary
INVESTMENT ADVISER OpCap Advisors One World Financial Center New York, NY 10281 TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR BostonEquiServe L.P. P.O. Box 8200 Boston, MA 02266 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. QUARTERLY REPORT MARCH 31, 1996 [LOGO] MANAGED BY OPCAP ADVISORS -----END PRIVACY-ENHANCED MESSAGE-----