-----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, NHfW1EDBbLoydFxRkKAFKq0MK0QgIRXc2aeon5lwYaDQkwDfuhBi9fX17gnwEQH6 9X8dtZnlPRVsPPvcpA1OYA== 0000889812-96-001175.txt : 19960829 0000889812-96-001175.hdr.sgml : 19960829 ACCESSION NUMBER: 0000889812-96-001175 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960816 FILED AS OF DATE: 19960828 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-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04797 FILM NUMBER: 96621733 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. AUGUST 16, 1996 DEAR SHAREHOLDER: The Dual Purpose Fund continued to outperform the Standard & Poor's 500 Index in the second quarter. The Fund had a total return on its portfolio of 4.9% in the quarter, surpassing the 4.5% return of the Standard & Poor's 500 Index including dividends (S&P 500). For the first half, the Fund's total return on its portfolio was 13.2%, above the 10.1% return of the S&P 500. The Fund has also performed well over longer periods, producing a compound annual total return on its portfolio of 16.3% since inception on February 13, 1987, exceeding by a wide margin the 13.2% 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 second quarter and the first half. PORTFOLIO HOLDINGS AND CHANGES The Fund owns a diversified portfolio of securities aimed at generating capital appreciation and income. At the end of the second quarter, the Fund's assets were allocated 76% to common stocks, 8% to securities convertible into common stocks, 14% to bonds, notes and preferred stock, and 2% to cash and equivalents. This allocation reflected a moderate increase in common stocks during the quarter and a moderate decrease in convertible securities, due in part to the sale of AMR Corp. convertible debentures and the purchase of AMR common shares. The Fund's performance in the quarter and the half was driven primarily by favorable stock selection. The common stocks in the Fund's portfolio produced a total return of 6.2% in the quarter, exceeding the 4.5% return of the S&P 500. During the quarter, we added significantly to the Fund's position in Countrywide Credit Industries, Inc., the nation's largest residential mortgage lender. The only major sale was the elimination of our investment in Frontier Corp. The Fund invests in superior, undervalued businesses for the long-term. We stick with quality companies until their value is reflected in the stock price, or until we find companies that offer even better value. The five largest equity holdings at June 30, 1996 were WorldCom, Inc., the nation's fourth largest long-distance telecommunications company, representing 5.5% of the Fund's net assets; Mid Ocean Ltd., a Bermuda-based provider of excess property and casualty insurance, 5.4% of net assets; Canadian Pacific, Ltd., a Canadian transportation and natural resources company, 5.3% of net assets; Varity Corp., a highly profitable manufacturer of automotive components and other products, 5.3% of net assets; and ACE, Ltd., a Bermuda-based provider of excess directors and officers liability insurance, 5.2% of net assets. WorldCom, the Fund's top position, highlights the superior business qualities we look for in a company. Since its merger with IDB Communications in December 1994 and its acquisition of the network services operations of Williams Telecommunications in January 1995, WorldCom has grown rapidly by offering a full array of long-distance telecommunications services to its customers, primarily businesses. WorldCom's operations are extremely profitable. Operating returns are about 67% of net operating assets, versus about 18% for the average U.S. non-financial company. Most companies with this level of profitability cannot reinvest excess cash flow at similar returns. WorldCom is an exception. The company spends about $400 million a year on capital additions, compared with depreciation of roughly $180 million, and its returns on investment continue to climb. WorldCom has identified additional city pair network construction opportunities that may require $650 million to $800 million of capital over the next two years. If these investments are made, they too should be accretive to returns. How can a company deploy so much capital so profitably? The answer lies in an extraordinarily rapid growth rate. Excluding the operator service business, which the company is exiting due to inadequate profitability, internal unit volume growth is 24% to 26% a year. The company constantly reduces prices to gain market share. As a result, 25% unit volume growth produces 20% internal revenue growth. However, as fixed line costs and depreciation are spread over a larger revenue base, operating margins expand. With 20% revenue growth, WorldCom can increase its operating profits 30% per year internally! The company also enjoys external growth opportunities through mergers and acquisitions. It is a beneficiary, as well, of the Telecommunications Bill passed earlier this year. As new participants enter the long-distance market, WorldCom will provide capacity to many of them. We believe WorldCom's valuation is modest relative to its prospects. Economic earnings (including about $.75 per share of goodwill amortization) are expected to reach about $2.65 per share in 1996 and about $3.35 per share in 1997. Based on the recent stock price, this equals a price/earnings ratio of 21x for 1996 and 16.5x for 1997, a low valuation for a company with 30%-plus internal growth in operating profits and the potential for additional growth deriving from the Telecommunications Bill. For these reasons, WorldCom is one of the Fund's major positions. CAPITAL SHARES The Capital Shares of the Fund 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 5.4% in the second quarter and 15.5% in the first half, exceeding the S&P 500 in both periods. At June 30, 1996, the Capital Shares had an NAV of $38.86 each and were entitled to the capital appreciation or depreciation on the entire net assets of the Fund, equal to $50.60 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 June 30, 1996 they provided a compound annual pretax return of 19.0% (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), readily outpacing the 13.2% 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 6.2% in the quarter and 13.7% in the half. As of June 30, 1996, the market price of the Capital Shares was $36.25 per share, a 6.7% 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. The Fund paid regular monthly dividends of $.10 per Income Share in the first half, or a total of $.60 per share for the six-month period. The Income Shares' total return (dividends paid and change in market price assuming the reinvestment of dividends) was 1.5% in the second quarter and 3.0% in the first half, exceeding the total return of 0.1% and 1.4%, respectively, on a 10-year Treasury security maturing in February 1997. From inception on February 13, 1987 through June 30, 1996, the compound annual total return on the Income Shares was 10.4% at market, assuming reinvestment of dividends, well above the 7.6% compound return for a 10-year Treasury security maturing in February 1997. The Income Shares had a market price of $11.75 each at June 30, 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. RECENT DEVELOPMENT At a meeting of the Fund's Board of Directors on August 15, OpCap Advisors, the Fund's investment adviser, and OppenheimerFunds, Inc. proposed that the Fund become an open-end fund, with capital appreciation as its investment objective, after the Income Shares are redeemed on January 31, 1997. On becoming an open-end fund, the present Capital Shares would be redeemable at net asset value. The Board is actively considering the proposal. If approved by the Board, the proposal would be submitted to the Capital Shareholders seeking their approval. Should the proposal be adopted, OppenheimerFunds, Inc. intends to offer each Income Shareholder the option to receive, in lieu of cash, Class A shares of any Oppenheimer Fund without payment of sales charge. You will be receiving more detailed information about this proposal during the next few months. OUTLOOK The stock market had advanced for nearly six years through the 1996 second quarter without as much as a 10% decline. Although the market, as measured by the popular indices, appears to be highly valued to overvalued, we believe the stocks owned by the Fund are still reasonably priced, offering opportunities for sustained investment returns. We will continue to do what we do best, which is to invest in securities offering value and solid prospects for profitable growth. Our goal in doing so is to produce above-average returns with below-average risk. Thank you for investing with us. We at the Fund and its investment adviser, OpCap Advisors, appreciate the trust you have placed in us. We remain dedicated to serving your investment needs. Sincerely, Joseph M. La Motta President QUEST FOR VALUE DUAL PURPOSE FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 1996
PRINCIPAL AMOUNT VALUE - ------------ ------------ REPURCHASE AGREEMENT--1.1% $ 10,312,000 Lehman Brothers, 5.35%, 7/01/96, (dated 6/28/96, proceeds at maturity: $10,316,597, collateralized by $10,010,000 par, $10,521,511 value, U.S. Treasury Notes, 8.00%, 1/15/97) $ 10,312,000 (cost--$10,312,000)........... ------------ CORPORATE NOTES AND BONDS--12.9% Casinos/Gaming--2.4% $ 19,000,000 Trump Holdings & Funding Sr. Sub. Notes 15.50%, 6/15/05............... $ 22,372,500 ------------ Media/Broadcasting--3.9% 37,750,000 American Radio Systems Corp. Sr. Sub. Notes 9.00%, 2/01/06................ 35,579,375 ------------ Printing/Publishing--1.7% 16,700,000 Hollinger International Publishing Sr. Sub. Notes 9.25%, 2/01/06................ 15,280,500 ------------ Textiles--4.9% 46,000,000 WestPoint Stevens, Inc. Sr. Sub. Deb. 9.375%, 12/15/05.............. 44,390,000 ------------ Total Corporate Notes and Bonds (cost--$118,303,711).......... $117,622,375 ------------ CONVERTIBLE CORPORATE NOTES AND BONDS--4.1% Oil/Gas--2.0% $ 12,970,545 Crusader Ltd. Conv. Sub. Notes 6.00%, 2/14/04 (A)............ $ 18,588,088 ------------ Real Estate--2.1% 18,442,153 Security Capital Group, Inc. Conv. Sub. Deb. 12.00%, 6/30/14 (A)........... 18,921,283 ------------ Total Convertible Corporate Notes and Bonds (cost--$30,353,643)........... $ 37,509,371 ------------ SHARES VALUE - ------------ ------------ PREFERRED STOCK--1.2% Entertainment 310,000 Time Warner Financing Trust $1.24 Pfd. (cost--$9,652,620)............ $ 11,160,000 ------------ CONVERTIBLE PREFERRED STOCKS--4.2% Media/Broadcasting--1.3% 200,000 American Radio Systems Corp. $3.50 Conv. Exch. Pfd......... $ 11,800,000 ------------ Miscellaneous Financial Services--1.2% 500,000 Merrill Lynch & Co., Inc. Cox--Strypes $1.37 Conv. Exch. Pfd......... 11,062,500 ------------ Tobacco/Beverages/Food Products--1.7% 1,163,900 Flagstar Companies, Inc. $2.25 Conv. Exch. Pfd......... 14,913,051 ------------ Total Convertible Preferred Stocks (cost--$48,078,775)........... $ 37,775,551 ------------ COMMON STOCKS--75.7% Airlines--4.5% 450,000 AMR Corp.*...................... $ 40,950,000 ------------ Automotive--5.3% 1,000,000 Varity Corp.*................... 48,125,000 ------------ Casinos/Gaming--3.8% 515,000 GTECH Holdings Corp.*........... 15,256,875 679,600 Trump Hotels & Casino Resorts, Inc.*......................... 19,368,600 ------------ 34,625,475 ------------ Chemicals--1.1% 254,700 SGL Carbon AG ADR*.............. 9,742,275 ------------ Conglomerates--5.3% 2,200,000 Canadian Pacific, Ltd........... 48,400,000 ------------ Electronics--4.7% 1,035,800 UCAR International, Inc.*....... 43,115,175 ------------ Insurance--21.9% 1,000,000 ACE, Ltd........................ 47,000,000 652,700 EXEL Ltd........................ 46,015,350 75,400 Horace Mann Educators Corp...... 2,393,950 1,210,000 Mid Ocean Ltd................... 49,610,000 1,035,000 PartnerRe Ltd................... 30,920,625 500,000 Progressive Corp., Ohio......... 23,125,000 ------------ 199,064,925 ------------
SHARES VALUE - ------------ ------------ Metals/Mining--4.7% Freeport McMoRan, Copper & Gold 646,250 (Class A)....................... $ 19,306,719 752,601 (Class B)....................... 23,989,157 ------------ 43,295,876 ------------ Miscellaneous Financial Services--3.4% 1,250,000 Countrywide Credit Industries, Inc........................... 30,937,500 ------------ Oil/Gas--2.6% 485,000 Triton Energy Ltd. (Class A)*... 23,583,125 ------------ Real Estate--2.9% 24,346 Security Capital Group, Inc. (A)........................... 26,127,473 ------------ Telecommunications--5.5% 900,000 WorldCom, Inc.*................. 49,837,500 ------------ SHARES VALUE - ------------ ------------ Tobacco/Beverages/Food Products--10.0% 450,000 Philip Morris Companies, Inc.... $ 46,800,000 1,300,000 UST, Inc........................ 44,525,000 ------------ 91,325,000 ------------ Total Common Stocks (cost--$568,626,311).......... $689,129,324 ------------
TOTAL INVESTMENTS (cost--$785,327,060)................. 99.2% $903,508,621 Other Assets in Excess of Other Liabilities.................... 0.8 7,430,807 ------ ------------ TOTAL NET ASSETS....................... 100.0% $910,939,428 ------ ------------ ------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- * Non-income producing security. NOTES TO SCHEDULE OF INVESTMENTS: (A) 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 DATE OF PAR AVERAGE AS OF DESCRIPTION ACQUISITION AMOUNT SHARES COST JUNE 30, 1996 - ------------------------------------------------------ ----------- ----------- ------ ------- ------------- Crusader Limited 6.00% 2/14/04........................ 4/28/94 $12,970,545 -- $ 100 $ 143 Security Capital Group, Inc. 12.00%, 6/30/14..................................... 6/16/94 18,442,153 -- 94 103 Security Capital Group, Inc. Common Stock........................................ 8/02/93 -- 24,346 699 1,073
QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996 ASSETS Investments, at value (cost--$785,327,060)........................................ $903,508,621 Cash.............................................................................. 209 Dividends and interest receivable................................................. 6,837,454 Income tax receivable............................................................. 116,952 Receivable for investments sold................................................... 63,125 Prepaid expenses and other assets................................................. 618,456 ------------ Total assets.................................................................... $911,144,817 LIABILITIES Dividends payable to Income Shareholders.......................................... 79,409 Other payables and accrued expenses............................................... 125,980 ------------ Total liabilities............................................................... 205,389 ------------ NET ASSETS (Shareholders' Equity) Net assets applicable to 18,004,302 Income Shares outstanding of $.01 par value................................................................. $211,354,299 Net assets applicable to 18,004,302 Capital Shares outstanding of $.01 par value................................................................. 699,585,129 ------------ Total Net Assets................................................................ $910,939,428 ------------ ------------
INCOME CAPITAL SHARES SHARES ------------ ------------ Net asset value per share......................................................... $11.74 $38.86
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1996 INVESTMENT INCOME: Interest.......................................................................... $8,251,025 Dividends......................................................................... 7,619,150 ---------- Total investment income........................................................ $ 15,870,175 OPERATING EXPENSES: Investment advisory fees (note 2a)................................................ $2,402,422 Administration fees (note 2b)..................................................... 430,757 Reports and notices to shareholders............................................... 89,642 Custodian fees (note 2d).......................................................... 45,688 Transfer and dividend disbursing agent fees....................................... 31,201 Auditing, consulting and tax return preparation fees.............................. 30,278 Directors' fees and expenses...................................................... 21,134 Exchange fees..................................................................... 18,410 Legal fees........................................................................ 5,694 Miscellaneous..................................................................... 26,731 ---------- Total operating expenses....................................................... 3,101,957 Less: Expense offset arrangement (note 2d)..................................... (12,833) ---------- Net operating expenses....................................................... 3,089,124 ------------ Net investment income........................................................ 12,781,051 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET: Net realized gain on investments.................................................. $169,312,182 Net change in unrealized appreciation (depreciation) on investments............... (75,529,949) ------------ Net realized gain and change in unrealized appreciation (depreciation) on investments................................................................... 93,782,233 ------------ Net increase in net assets resulting from operations................................ $106,563,284 ------------ ------------
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, 1996 (1) 1995 ------------ ------------ Net investment income............................................................. $ 12,781,051 $ 25,044,472 Net realized gain on investments.................................................. 169,312,182 75,958,250 Net change in unrealized appreciation (depreciation) on investments............... (75,529,949) 94,400,856 Provision for income taxes on capital gains retained (note 1b).................... -- (28,346,378) ------------ ------------ Net increase in net assets resulting from operations............................ 106,563,284 167,057,200 Dividends to Income Shareholders ($.60 and $1.39 per share, respectively)....................................... (10,802,582) (25,025,980) Distributions to Capital Shareholders ($0 and $.033 per share, respectively)......................................... -- (594,142) ------------ ------------ Total increase in net assets.................................................... 95,760,702 141,437,078 Net Assets: Beginning of period............................................................. 815,178,726 673,741,648 ------------ ------------ End of period (including undistributed net investment income of $2,496,376 and $517,907, respectively)....................................... $910,939,428 $815,178,726 ------------ ------------ ------------ ------------
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, 1996 (1) 1995 ------------ ------------ Net investment income available for distribution: Balance, beginning of period.................................................... $ 517,907 $ 499,415 Net investment income........................................................... 12,781,051 25,044,472 Dividends to Income Shareholders ($.60 and $1.39 per share, respectively)...................................... (10,802,582) (25,025,980) ------------ ------------ Balance, end of period....................................................... $ 2,496,376 $ 517,907 ------------ ------------ ------------ ------------ Accumulated net realized gains: Balance, beginning of period.................................................... $203,233,461 $156,215,731 Net realized gain on investments................................................ 169,312,182 75,958,250 Provision for income taxes on long-term capital gains retained (note 1b)........ -- (28,346,378) Distributions to Capital Shareholders ($0 and $.033 per share, respectively)........................................ -- (594,142) ------------ ------------ Balance, end of period....................................................... $372,545,643 $203,233,461 ------------ ------------ ------------ ------------ Net unrealized appreciation (depreciation) on investments: Balance, beginning of period..................................................... $193,711,510 $ 99,310,654 Net change in unrealized appreciation (depreciation) on investments.............. (75,529,949) 94,400,856 ------------ ------------ Balance, end of period........................................................ $118,181,561 $193,711,510 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- (1) Unaudited. QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 (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. OpCap 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 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. The following is a summary of significant accounting policies consistently followed by the Fund: (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. 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. 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 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 investment 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) 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. (E) DIVIDENDS AND DISTRIBUTIONS The Fund distributes its net investment income to Income Shareholders at a fixed monthly rate (currently $.10 a share) with any excess net investment income generally declared by year end. 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. QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) JUNE 30, 1996 The Fund declared dividends of $.60 per Income Share during the six months ended June 30, 1996. 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, 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, 1996 amounted to $745,498 of which Oppenheimer & Co., Inc., an affiliate of the Adviser, received $141,429. (d) The Fund benefits from an expense offset arrangement with its custodian bank where uninvested cash balances earn credits that reduce monthly fees. Had these cash balances been invested in income producing securities, they would have generated income for the Fund. (3) PURCHASES AND SALES OF SECURITIES During the six months ended June 30, 1996, purchases and sales of investment securities, other than short-term securities, aggregated $438,884,424 and $473,139,017, respectively. (4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL INCOME TAX PURPOSES At June 30, 1996, the cost of investments for Federal income tax purposes was $785,327,060. Aggregate gross unrealized appreciation (all securities in which there is an excess of value over tax cost) amounted to $124,355,244 and aggregate gross unrealized depreciation (all securities in which there is an excess of tax cost over value) amounted to $6,173,683, resulting in net unrealized appreciation of $118,181,561. QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED) JUNE 30, 1996 (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 NET UNREALIZED INVESTMENT INVESTMENT GAIN (LOSS) ON INCOME INCOME INVESTMENTS--NET -------------------- -------------------- ---------------------- PER PER PER QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE - ---------------------------------------------------- ----------- ----- ----------- ----- ------------ ------ March 31, 1996...................................... $ 7,608,934 $0.42 $ 6,096,637 $0.34 $ 58,115,335 $ 3.23 June 30, 1996....................................... 8,261,241 0.46 6,684,414 0.37 35,666,898 1.98 ----------- ----- ----------- ----- ------------ ------ $15,870,175 $0.88 $12,781,051 $0.71 $ 93,782,233 $ 5.21 ----------- ----- ----------- ----- ------------ ------ ----------- ----- ----------- ----- ------------ ------ 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 September 30, 1995.................................. 6,404,802 0.35 4,899,611 0.27 60,450,460 3.36 December 31, 1995................................... 8,932,620 0.50 7,391,873 0.41 (36,028,299)* (2.00) ----------- ----- ----------- ----- ------------ ------ $30,753,737 $1.71 $25,044,472 $1.39 $142,012,728* $ 7.89 ----------- ----- ----------- ----- ------------ ------ ----------- ----- ----------- ----- ------------ ------
- ------------------ * After provision for income taxes accrued on net realized long-term gains. (7) SUBSEQUENT EVENTS On July 15, 1996, a dividend of $.10 per share or approximately $1,800,430 was declared to Income Shareholders payable July 31, 1996 to shareholders of record on July 17, 1996. On August 9, 1996, a dividend of $.10 per share or approximately $1,800,430 was declared to Income Shareholders payable August 30, 1996 to shareholders of record on August 19, 1996. QUEST FOR VALUE DUAL PURPOSE FUND, INC. FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------- 1996 (1) 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ PER SHARE OPERATING PERFORMANCE: Income Shares: Net Asset Value, Beginning of Period.......................... $ 11.63 $ 11.63 $ 11.61 $ 11.61 $ 11.60 Net investment income............. 0.71 1.39 1.36 1.30 1.35 Dividends from net investment income.......................... (0.60) (1.39) (1.34) (1.30) (1.34) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period.... $ 11.74 $ 11.63 $ 11.63 $ 11.61 $ 11.61 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Market Value, End of Period....... $ 11.75 $ 12.00 $ 12.125 $ 13.25 $ 13.00 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Return (2)....... 3.0% 10.9% 1.8% 12.3% 7.4% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Capital Shares: Net Asset Value, Beginning of Period.......................... $ 33.65 $ 25.79 $ 27.09 $ 26.29 $ 22.59 Net realized and unrealized gain (loss) on investments........... 5.21 9.46 (0.38) 2.45 6.09 Provision for corporate income taxes on net realized long-term capital gains................... -- (1.57) (0.53) (1.43) (1.10) Distributions from net realized short-term capital gains........ -- (0.03) (0.39) (0.22) (1.29) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Period.... $ 38.86 $ 33.65 $ 25.79 $ 27.09 $ 26.29 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Market Value, End of Period....... $ 36.25 $ 31.875 $ 23.00 $ 23.75 $ 23.00 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Return (3)....... 13.7% 45.6% 0.9% 10.5% 44.6% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period......... $910,939,428 $815,178,726 $673,741,648 $696,802,938 $682,373,943 ------------ ------------ ------------ ------------ ------------ Ratio of Operating Expenses to Average Net Assets.............. 0.72%(4,5,6) 0.73% 0.74% 0.74% 0.74% ------------ ------------ ------------ ------------ ------------ Ratio of Net Investment Income to Average Net Assets.............. 2.97%(4,5,6) 3.20% 3.47% 3.29% 3.61% ------------ ------------ ------------ ------------ ------------ Portfolio Turnover Rate........... 51% 72% 45% 51% 45% ------------ ------------ ------------ ------------ ------------ Average Commission Rate........... $ 0.05 -- -- -- -- ------------ ------------ ------------ ------------ ------------ 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 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 1991 ------------ PER SHARE OPERATING PERFORMANCE: Income Shares: Net Asset Value, Beginning of Period.......................... $ 11.60 Net investment income............. 1.37 Dividends from net investment income.......................... (1.37) ------------ Net Asset Value, End of Period.... $ 11.60 ------------ ------------ Market Value, End of Period....... $ 13.375 ------------ ------------ Total Investment Return (2)....... 15.0% ------------ ------------ Capital Shares: Net Asset Value, Beginning of Period.......................... $ 16.43 Net realized and unrealized gain (loss) on investments........... 6.77 Provision for corporate income taxes on net realized long-term capital gains................... (0.60) Distributions from net realized short-term capital gains........ (0.01) ------------ Net Asset Value, End of Period.... $ 22.59 ------------ ------------ Market Value, End of Period....... $ 17.625 ------------ ------------ Total Investment Return (3)....... 52.1% ------------ ------------ RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period......... $615,726,914 ------------ Ratio of Operating Expenses to Average Net Assets.............. 0.77% ------------ Ratio of Net Investment Income to Average Net Assets.............. 4.39% ------------ Portfolio Turnover Rate........... 62% ------------ Average Commission Rate........... -- ------------ Number of each class of Income and Capital Shares outstanding at the end of period............... 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 federal taxes paid on long-term capital gains on year end (both at market). (4) Average net assets for the period ended June 30, 1996 were $866,248,725. (5) Annualized. (6) Gross of expense offsets (see note 2d in Notes to Financial Statements). 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, convertible securities, 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 capital o Entitled to all the Fund's appreciation and subject to all depreciation Net Investment Income. from 100% of the assets of the Fund. - ------------------------------------------------------------------------------- o No distributions from Net Investment Income o Minimum cumulative dividend as long as Income Shares are outstanding. of $.875 annually. - ------------------------------------------------------------------------------- o Bear none of the Fund's expenses. o Potential for growing income stream. 1996 dividends amounted to $.60 through June 30, 1996. - ------------------------------------------------------------------------------- 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, BostonEquiServe L.P. at 1-800-426-5523 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. ANNUAL SHAREHOLDERS MEETING - -------------------------------------------------------------------------------- The Fund held its annual shareholders meeting on May 23, 1996. At the meeting, income and capital shareholders voted separately on the election of the income and capital share directors, voted together on the election of combined income/capital directors and ratified the selection of Price Waterhouse LLP as the independent accountants of the Fund. The following table provides information concerning the matters voted on at the meeting: 1. ELECTION OF DIRECTORS (INCOME SHARES VOTING ONLY)
NOMINEE VOTES FOR VOTES AGAINST WITHHELD AUTHORITY - ----------------------------------------------------------------- ---------- -------------- ------------------ Pamela W. McCann................................................. 15,154,356 0 129,634 Dr. Thomas W. Murnane............................................ 15,157,459 0 126,531
2. ELECTION OF DIRECTORS (CAPITAL SHARES VOTING ONLY)
NOMINEE VOTES FOR VOTES AGAINST WITHHELD AUTHORITY - ----------------------------------------------------------------- ---------- -------------- ------------------ Eugene D. Brody.................................................. 13,481,942 0 125,937 George Loft...................................................... 13,479,452 0 128,427
3. ELECTION OF DIRECTORS (INCOME/CAPITAL SHARES VOTING)
NOMINEE VOTES FOR VOTES AGAINST WITHHELD AUTHORITY - ----------------------------------------------------------------- ---------- -------------- ------------------ Joseph M. La Motta............................................... 28,643,987 0 247,882 George D. Langdon, Jr............................................ 28,644,251 0 247,618 Lawrence Sherman................................................. 28,643,701 0 248,168
4. RATIFICATION OF PRICE WATERHOUSE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE FUND
VOTES FOR VOTES AGAINST VOTES ABSTAINED ---------- -------------- ------------------ 28,527,957 115,835 248,077
The following table provides information concerning the Directors of the Fund:
DIRECTOR TERM EXPIRATION - ------------------------------------------- ------------------- Joseph M. La Motta (1)..................... 1997 Annual Meeting Eugene D. Brody (2)........................ 1997 Annual Meeting George D. Langdon, Jr. (1)................. 1997 Annual Meeting George Loft (2)............................ 1997 Annual Meeting Pamela W. McCann (3)....................... 1997 Annual Meeting Dr. Thomas W. Murnane (3).................. 1997 Annual Meeting Lawrence Sherman (1)....................... 1997 Annual Meeting
- ------------------ Key: (1) Director for both Income and Capital Shares (2) Director for Capital Shares (3) Director for Income Shares QUEST FOR VALUE QUEST FOR VALUE DUAL PURPOSE DUAL PURPOSE FUND, INC. 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 Richard L. Peteka Assistant Treasurer Deborah Kaback Assistant Secretary SEMI-ANNUAL REPORT INVESTMENT ADVISER OpCap Advisors One World Financial Center New York, NY 10281 JUNE 30, 1996 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. MANAGED BY OPCAP ADVISORS -----END PRIVACY-ENHANCED MESSAGE-----