-----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, HPFQzbsVY3z21jJAeUBi0/786/vVg6ff5cxl6SWxMncTfj0I2c5xXN7SojIIerR3 1RKAxgm9uCO03ABJgrLIqw== 0000889812-97-000365.txt : 19970221 0000889812-97-000365.hdr.sgml : 19970221 ACCESSION NUMBER: 0000889812-97-000365 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970211 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: 97523627 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 ANNUAL REPORT QUEST FOR VALUE DUAL PURPOSE FUND, INC. JANUARY 30, 1997 DEAR SHAREHOLDER: We are pleased to report on recent events of the Quest for Quest for Value Value Dual Purpose Fund. Following ten years of superior Dual Purpose investment performance, the Fund will convert to an Fund, Inc. open-end fund (mutual fund) after the close of business on February 28, 1997. Conversion was overwhelmingly approved One World Financial in a recent vote of the Capital Shares. Center On becoming open-ended, the Fund will be renamed the New York, NY 10281 Oppenheimer Quest Capital Value Fund, Inc. It will have an 1-800-600-5487 investment objective, capital appreciation, similar to the objective of the Capital Shares of the Dual Purpose Fund. If you own Capital Shares, you will automatically become a Class A shareholder of the open-end fund. If you own Income Shares of the Dual Purpose Fund, you are entitled to the cash redemption price of $11.60 per share plus $.0813 per share of accrued but previously unpaid dividends, for a total of $11.6813 per Income Share. We have written to you previously about the ability to invest the redemption proceeds from your Income Shares in any of the more than 50 Oppenheimer mutual funds without a sales charge for a limited period of time. This provides a convenient method to reinvest in a fund without a sales charge, depending on your particular investment objectives and needs. Whether you own Capital Shares or Income Shares, if you have any questions or need further information, please call us at our toll-free number, 1-800-600-5487. We are here to help you. SUPERIOR PERFORMANCE RECORD It was a decade ago, on February 13, 1987, that the Fund began operation with an equal number of Capital Shares (receiving all the capital appreciation and absorbing any losses from the Fund's entire portfolio) and Income Shares (receiving all the net income on the portfolio). The Capital Shares were intended for investors seeking capital appreciation and preservation of capital, while the Income Shares were targeted to investors seeking high current income and long-term growth of income. Over the decade, the Fund has been extremely successful in delivering favorable returns to both classes of shareholders: - ---------------------------------------------------------- Compound Average Annual Pretax Return Dual Purpose Fund Versus Benchmarks February 13, 1987 to December 31, 1996 Capital Shares 18.5% Standard & Poor's 500 Stock Index 13.7% Income Shares 10.3% 10-Year Treasury Bond Issued in February 1987 7.7%
- ---------------------------------------------------------- Returns for the Capital Shares are based on net asset value, after adjustment for short-term capital gains distributions and for federal taxes paid on net realized long-term capital gains retained by the Fund. Returns for the Income Shares assume reinvestment of dividends and are based on the $12.50 per share initial offering price. Based on their $11.60 per share liquidation value, the Income Shares provided an even higher compound annual total return of 11.9%. We are very proud of this performance, which has been achieved by adhering to a disciplined style of value investing. WHAT HAPPENS NEXT Conversion to an open-end fund is a natural progression in the life of the Dual Purpose Fund. The Fund's Articles of Incorporation provide that the Fund will redeem all Income Shares on January 31, 1997, and that the Fund, consisting thereafter of the assets of the Capital Shares, will either liquidate or convert to an open-end fund. In December 1996, holders of the Capital Shares approved conversion of the Fund to an open-end fund. In comparison to the Dual Purpose Fund's closed-end structure of a fixed number of shares, as an open-end investment company the Fund will continuously offer its shares to investors at the public offering price and will redeem shares at their net asset value (NAV). Shareholders will be able to reinvest all dividends and distributions at the NAV. Capital Shareholders also approved the appointment of OppenheimerFunds, Inc. (OFI), a leading mutual fund organization, as the open-end fund's adviser and OppenheimerFunds Distributor, Inc., a subsidiary of OFI, as its distributor. We at OpCap Advisors will continue to provide portfolio management services to the Fund as subadviser, employing the same investment philosophy and methodology we have used in the past. More information about the Fund, including investment policies and strategies, investment risks, expenses, and purchase, redemption and exchange procedures, will be set forth in a prospectus to be sent to shareholders of the Fund after it becomes open-ended. 1996 INVESTMENT RESULTS We spent much of the fourth quarter adjusting the portfolio, including raising cash, to prepare for the redemption of the Income Shares. As of December 31, 1996, assets were allocated 70% to common stocks, 4% to securities convertible into common stocks, 1% to corporate notes, and 25% to cash, cash equivalents and U.S. Treasuries. Because of the Fund's above-average holdings of bonds, notes and cash in a rising stock market, investment results were dampened somewhat in the 1996 fourth quarter. The total return on the Fund's portfolio was 6.4% in the quarter and 18.5% for the year, compared with 8.3% and 23.0%, respectively, for the S&P 500. We believe these returns were satisfactory given the necessity for the Fund's conservative investment posture. The Fund continues to have an excellent long-term performance record. From inception on February 13, 1987, through December 31, 1996, the compound average annual total return on the Fund's portfolio was 16.0%, outpacing the 13.7% compound average annual total return of the S&P 500. INVESTMENT PHILOSOPHY AND PORTFOLIO ACTIVITY Following redemption of the Income Shares, the Fund will primarily own common stocks. Convertible securities and bonds will be owned, if at all, only for their appreciation potential, not for income. In selecting securities for the Fund, we will continue to do what we do best, which is to invest 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. In the 1996 fourth quarter, we established a new position in the common stock of Chesapeake Energy Corp. and added to the Fund's investment in Trump Hotels and Casino Resorts and, through the conversion of the Fund's Crusader Ltd. convertible notes, added to its position in Triton Energy Ltd. (Class A). We sold a number of equity positions, including AMR Corp. and Freeport McMoRan Copper & Gold (Class A and B), and reduced several others. The Fund's five largest equity holdings at year end were Mid Ocean Ltd., a Bermuda-based provider of excess property and casualty insurance; ACE, Ltd., a Bermuda-based provider of excess directors and officers liability insurance; Canadian Pacific, Ltd., a Canadian transportation and natural resources company; Lucas Varity PLC, a highly profitable manufacturer of automotive components and other products; and WorldCom, Inc., the nation's fourth largest long-distance telecommunications company. Each of these quality businesses has a strong competitive position and excellent earnings prospects. Moreover, we believe each is undervalued in the market, offering significant potential for price appreciation. CAPITAL SHARES The NAV of the Capital Shares increased 7.5% in the fourth quarter and 20.5% for the year after adjustment for federal taxes of $3.2848 per Capital Share accrued at year end on net realized long-term capital gains retained by the Fund. Owners of Capital Shares are entitled to a credit on their federal income tax returns for the tax paid by the Fund on their shares. Tax-exempt shareholders, such as qualified pension plans and 401(k) plans, are entitled to a refund from the Internal Revenue Service for the tax paid on their shares. The market price of the Capital Shares on the New York Stock Exchange advanced 23.6% in 1996, including an 11.4% increase in the fourth quarter. The market price at year end was $36.125 per share, or 3% below the NAV of $37.25 per share. This discount will automatically disappear when the Fund converts to an open-end fund. INCOME SHARES The Fund continued to pay regular monthly dividends of $.10 per Income Share in 1996. A year-end extra dividend of $0.185 per share raised total dividends for the year to $1.385 per Income Share. The Income Shares had a total return (dividends paid and change in market price assuming the reinvestment of dividends) of 7.8% in 1996, including a 2.0% total return in the fourth quarter. This exceeded the total return of 5.4% and 1.3%, respectively, on the 10-year Treasury security maturing in February 1997. The market price of the Income Shares was $11.50 each at December 31, 1996, compared with the redemption price of $11.60 per share plus accrued but unpaid dividends. LOOKING AHEAD The Dual Purpose Fund as we know it is about to come to an end. But this need not be farewell. If you own Capital Shares, you will automatically become a Class A shareholder of the Oppenheimer Quest Capital Value Fund. The name will be different, but the investment approach and portfolio manager will be the same. In its open-end status, the Fund will continue to seek capital appreciation through the disciplined OpCap Advisors value philosophy. This philosophy is aimed at generating superior returns with below-average risk. If you own Income Shares, as mentioned previously you have the option of reinvesting your redemption proceeds without an initial sales charge in any of the Oppenheimer funds. If your Income Shares are held in a brokerage account, please call your broker and explain that you want to take advantage of this opportunity. Your broker should be able to make all the necessary arrangements for this reinvestment. If your shares are registered in your name or your broker is unable to make the necessary arrangements, here is how to take advantage of this offer: o Call OppenheimerFunds at 1-800-525-7048 and indicate that you are or were a Quest for Value Dual Purpose Fund Income Shareholder. o Request a prospectus for the Oppenheimer fund or funds of your choice and a new account application. Please read the prospectus, which includes information on investment policies and fund charges and expenses, carefully before you send money or invest. You may also wish to speak to your financial adviser to help you make the appropriate investment choice. o If you decide to invest in an Oppenheimer fund, complete the new account application, sign the acknowledgment letter which was included in the redemption material which was previously mailed to you and return them with a check payable to the fund's distributor, OppenheimerFunds Distributor, Inc., in an amount not exceeding your Income Share redemption proceeds to: OppenheimerFunds Services P.O. Box 5270 Denver, CO 80217 THANK YOU FOR INVESTING WITH US It has been a wonderful privilege to serve your investment needs. We have sought to do so at all times with intelligence, prudence and enthusiasm. We appreciate the trust you have placed in us and hope to have the opportunity to continue to serve your needs in the future. Sincerely, /s/ Joseph M. La Motta Joseph M. La Motta President QUEST FOR VALUE DUAL PURPOSE FUND, INC. SCHEDULE OF INVESTMENTS DECEMBER 31, 1996 PRINCIPAL AMOUNT VALUE - ------------- ------------ REPURCHASE AGREEMENT--1.5% $ 13,185,000 Lehman Brothers, 6.85%, 1/2/97, (dated 12/31/96, proceeds at maturity: $13,190,018, collateralized by $13,000,000 par, $13,448,909 value, U.S. Treasury Notes, 6.50%, 8/31/01) (cost--$13,185,000)................... $ 13,185,000 ------------ SHORT-TERM CORPORATE NOTES--13.6% Automotive--2.3% $ 20,000,000 Ford Credit Europe Plc. 5.40%, 1/8/97......................... $ 19,979,000 ------------ Computers--3.9% 35,000,000 IBM Credit Corp. 5.33%, 1/29/97........................ 34,854,905 ------------ Miscellaneous Financial Services--7.4% 30,000,000 Household Finance Corp. 5.35%, 1/21/97........................ 29,910,833 15,000,000 Merrill Lynch & Co., Inc. 5.70%, 1/6/97......................... 14,988,125 20,000,000 Morgan Stanley Group, Inc. 5.43%, 1/15/97........................ 19,957,767 ------------ 64,856,725 ------------ Total Short-Term Corporate Notes (cost--$119,690,630)............ $119,690,630 ------------ U.S. TREASURY BOND--11.5% $ 100,000,000 6.75%, 8/15/26 (cost--$102,355,632).................. $100,750,000 ------------ CORPORATE NOTE--0.6% Casinos/Gaming $ 5,000,000 Trump Holdings & Funding Sr. Sub. Notes 15.50%, 6/15/05 (cost--$5,090,359).................... $ 5,700,000 ------------ CONVERTIBLE CORPORATE BOND--2.5% Real Estate $ 18,442,152 Security Capital Group, Inc. Conv. Sub. Deb. 12.00%, 6/30/14 (A) (cost--$17,383,098)................... $ 22,310,258 ------------ SHARES VALUE - ------------- ------------ CONVERTIBLE PREFERRED STOCKS--2.3% Media/Broadcasting--1.0% 200,000 American Radio Systems Corp. $3.50 Conv. Exch. Pfd................. $ 9,300,000 ------------ Miscellaneous Financial Services--1.3% 500,000 Merrill Lynch & Co., Inc. Cox--STRYPES** $1.37 Conv. Exch. Pfd................. 11,125,000 ------------ Total Convertible Preferred Stocks (cost--$21,599,768)................... $ 20,425,000 ------------ COMMON STOCKS--74.5% Automotive--6.0% 1,380,000 LucasVarity Plc.*....................... $ 52,440,000 ------------ Casinos/Gaming--1.6% 1,200,000 Trump Hotels & Casino Resorts, Inc.*........................ 14,400,000 ------------ Conglomerates--6.6% 2,200,000 Canadian Pacific, Ltd................... 58,300,000 ------------ Electronics--4.6% 1,080,100 UCAR International, Inc.*............... 40,638,762 ------------ Insurance--27.2% 1,000,000 ACE, Ltd................................ 60,125,000 1,327,000 EXEL Ltd................................ 50,260,125 1,150,000 Mid Ocean Ltd........................... 60,375,000 1,035,000 PartnerRe Ltd........................... 35,190,000 500,000 Progressive Corp., Ohio................. 33,687,500 ------------ 239,637,625 ------------ Miscellaneous Financial Services--4.4% 1,346,900 Countrywide Credit Industries, Inc....................... 38,555,013 ------------ Oil/Gas--7.8% 466,600 Chesapeake Energy Corp.................. 25,954,625 875,040 Triton Energy Ltd. (Class A)*........... 42,439,440 ------------ 68,394,065 ------------ Real Estate--3.5% 24,346 Security Capital Group, Inc. (A)........ 30,305,502 ------------ Telecommunications--5.9% 2,000,000 WorldCom, Inc.*......................... 52,126,000 ------------ SHARES VALUE - ------------- ------------ COMMON STOCKS (cont'd) Tobacco/Beverages/Food Products--6.9% 250,000 Philip Morris Companies, Inc............ $ 28,156,250 1,000,000 UST, Inc................................ 32,375,000 ------------ 60,531,250 ------------ Total Common Stocks (cost--$513,198,649).................. $655,328,217 ------------ VALUE ------------ TOTAL INVESTMENTS (cost--$792,503,136).................. 106.5% $937,389,105 Other Liabilities in Excess of Other Assets.......................... (6.5) (57,454,954) ----- ------------ TOTAL NET ASSETS........................ 100.0% $879,934,151 ----- ------------ ----- ------------ See accompanying notes to financial statements. - -------------------------------------------------------------------------------- * Non-income producing security. ** Structured yield product exchangeable for common stock. 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 DECEMBER 31, 1996 - ----------------------------------- ----------- ----------- ------------ ------- ----------------- Security Capital Group, Inc.(1) 12.00%, 6/30/14.................. 6/16/94 $18,442,153 -- $ 94 $ 121 Security Capital Group, Inc. Common Stock..................... 8/02/93 -- 24,346 699 1,245
- ------------------ (1) At December 31, 1996, this security had $1,059,480 worth of deferred interest accrued which is included as part of dividends and interest receivable on the Statement of Assets and Liabilities. QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (cost--$792,503,136)........................................ $937,389,105 Cash.............................................................................. 910 Dividends and interest receivable................................................. 6,588,500 Income tax receivable............................................................. 377,087 Prepaid expenses and other assets................................................. 15,938 ------------ Total assets.................................................................... $944,371,540 LIABILITIES Long-term capital gains tax payable............................................... 59,139,583 Dividends payable to Income Shareholders.......................................... 5,131,226 Other payables and accrued expenses............................................... 166,580 ------------ Total liabilities............................................................... 64,437,389 ------------ NET ASSETS (Shareholders' Equity) Net assets applicable to 18,004,302 Income Shares outstanding of $.01 par value................................................................. $209,327,886 Net assets applicable to 18,004,302 Capital Shares outstanding of $.01 par value................................................................. 670,606,265 ------------ Total Net Assets................................................................ $879,934,151 ------------ ------------ INCOME CAPITAL SHARES SHARES ------------ ------------ Net asset value per share......................................................... $ 11.63 $ 37.25 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME: Interest......................................................................... $16,424,805 Dividends........................................................................ 14,786,008 ----------- Total investment income....................................................... $ 31,210,813 OPERATING EXPENSES: Investment advisory fees (note 2a)............................................... $ 4,916,973 Administration fees (note 2b).................................................... 883,395 Reports and notices to shareholders.............................................. 184,107 Custodian fees................................................................... 84,899 Auditing, consulting and tax return preparation fees............................. 62,400 Transfer and dividend disbursing agent fees...................................... 52,832 Directors' fees and expenses..................................................... 42,500 Exchange fees.................................................................... 40,844 Legal fees....................................................................... 17,000 Miscellaneous.................................................................... 50,941 ----------- Total operating expenses...................................................... 6,335,891 Less: Expense offset arrangement (note 2d).................................... (13,092) ----------- Net operating expenses...................................................... 6,322,799 ------------ Net investment income....................................................... 24,888,014 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS--NET: Net realized gain on investments................................................. $173,198,410 Net change in unrealized appreciation (depreciation) on investments.............. (48,825,541) ------------ Net realized gain and change in unrealized appreciation (depreciation) on investments before provision for corporate income taxes on net long-term capital gains retained....................................................... 124,372,869 Provision for corporate income taxes (including $429,916 for state and local taxes) on net long-term capital gains retained (note 1b)..................... (59,569,499) ------------ Net realized gain and change in unrealized appreciation (depreciation) on investments after provision for corporate income taxes on net long-term capital gains retained....................................................... 64,803,370 ------------ Net increase in net assets resulting from operations............................... $ 89,691,384 ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ Net investment income............................................................. $ 24,888,014 $ 25,044,472 Net realized gain on investments, options and futures transactions................ 173,198,410 75,958,250 Net change in unrealized appreciation (depreciation) on investments, options and futures transactions........................................................... (48,825,541) 94,400,856 Provision for income taxes on capital gains retained (note 1b).................... (59,569,499) (28,346,378) ------------ ------------ Net increase in net assets resulting from operations............................ 89,691,384 167,057,200 Dividends to Income Shareholders ($1.385 and $1.39 per share, respectively)..................................... (24,935,959) (25,025,980) Distributions to Capital Shareholders ($0 and $.033 per share, respectively)......................................... -- (594,142) ------------ ------------ Total increase in net assets.................................................... 64,755,425 141,437,078 Net Assets: Beginning of year............................................................... 815,178,726 673,741,648 ------------ ------------ End of year (including undistributed net investment income of $469,962 and $517,907, respectively)...................................... $879,934,151 $815,178,726 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. STATEMENT OF CHANGES IN UNDISTRIBUTED NET INVESTMENT INCOME, REALIZED AND UNREALIZED GAINS (LOSSES)
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 ------------ ------------ Net investment income available for distribution: Balance, beginning of year....................................................... $ 517,907 $ 499,415 Net investment income............................................................ 24,888,014 25,044,472 Dividends to Income Shareholders ($1.385 and $1.39 per share, respectively).................................... (24,935,959) (25,025,980) ------------ ------------ Balance, end of year.......................................................... $ 469,962 $ 517,907 ------------ ------------ ------------ ------------ Accumulated net realized gains: Balance, beginning of year....................................................... $203,233,461 $156,215,731 Net realized gain on investments, options and futures transactions............... 173,198,410 75,958,250 Provision for income taxes on net long-term capital gains retained (note 1b)..... (59,569,499) (28,346,378) Distributions to Capital Shareholders ($0 and $.033 per share, respectively)........................................ -- (594,142) ------------ ------------ Balance, end of year.......................................................... $316,862,372 $203,233,461 ------------ ------------ ------------ ------------ Net unrealized appreciation (depreciation) on investments: Balance, beginning of year....................................................... $193,711,510 $ 99,310,654 Net change in unrealized appreciation (depreciation) on investments, options and futures transactions.............................................. (48,825,541) 94,400,856 ------------ ------------ Balance, end of year.......................................................... $144,885,969 $193,711,510 ------------ ------------ ------------ ------------
See accompanying notes to financial statements. - -------------------------------------------------------------------------------- QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 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. At December 31, 1996, securities with an aggregate value of $52,615,760 (6.0% of net assets) were valued in such manner. 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 were 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 holders of the Income Shares 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 (CONTINUED) DECEMBER 31, 1996 The Fund declared dividends of $1.385 per Income Share during the year ended December 31, 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 amounting to $.0813 per share. (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 year ended December 31, 1996 amounted to $1,040,957 of which Oppenheimer & Co., Inc., an affiliate of the Adviser, received $319,406. (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 year ended December 31, 1996, purchases and sales of investment securities, other than short-term securities, aggregated $634,222,148 and $787,797,418, respectively. (4) FEDERAL INCOME TAXES (A) COST OF INVESTMENTS At December 31, 1996, the cost of investments for Federal income tax purposes was $792,698,292. Aggregate gross unrealized appreciation (all securities in which there is an excess of value over tax cost) amounted to $161,949,524 and aggregate gross unrealized depreciation (all securities in which there is an excess of tax cost over value) amounted to $17,258,711, resulting in net unrealized appreciation of $144,690,813. (B) LONG-TERM CAPITAL GAINS For the year ended December 31, 1996, the Fund retained net tax basis realized long-term capital gains of $168,970,238 and accrued Federal income taxes of $59,139,583. (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-excess of par. QUEST FOR VALUE DUAL PURPOSE FUND, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996 (6) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
REALIZED AND UNREALIZED NET GAIN (LOSS) ON INVESTMENT INVESTMENT INVESTMENTS, INCOME INCOME OPTIONS AND FUTURES--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 September 30, 1996.............................. 7,554,467 0.42 5,973,296 0.33 (20,628,310) (1.15) December 31, 1996............................... 7,786,171 0.43 6,133,667 0.34 (8,350,553)* (0.46) ----------- ----- ----------- ----- ------------ ---------- $31,210,813 $1.73 $24,888,014 $1.38 $ 64,803,370* $ 3.60 ----------- ----- ----------- ----- ------------ ---------- ----------- ----- ----------- ----- ------------ ---------- 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 capital gains. (7) SPECIAL MEETING OF THE CAPITAL SHAREHOLDERS On December 20, 1996, Capital Shareholders approved a change in the Fund's subclassification under the Investment Company Act of 1940 from a closed-end management investment company to an open-end management investment company. The Fund also approved a new Investment Advisory Agreement with OppenheimerFunds, Inc. ('OFI'), a new Subadvisory Agreement between OFI and OpCap Advisors, a new Distribution and Service Plan and Agreement with OFI in respect to Class A shares, approved the Fund's Articles of Amendment and Restatement, a change in the Fund's fundamental investment objective to capital appreciation, changes to certain of the Fund's fundamental investment restrictions and the election of Directors. The Fund will pay OFI under the new Investment Advisory Agreement a fee at the rate of 1.00% of the first $400 million of net assets, .90% of the next $400 million of net assets and .85% of net assets over $800 million. For a two year period after the effective date of the new Investment Advisory Agreement, OFI will waive the following portion of the advisory fee--.15% of the first $200 million of net assets; .40% of the next $200 million of net assets; .30% of the next $400 million of net assets and .25% of net assets over $800 million. The fee under the new Distribution and Service Plan and Agreement with respect to Class A shares will consist of a service fee of .25% of net assets and a distribution fee of .25% of net assets. For the first two years after the effective date of the Class A Plan, the new Distributor has agreed to waive .15% of the distribution fee payable under the Class A Plan. OFI will pay OpCap Advisors' fee under the new Subadvisory Agreement. The approved changes become effective at the close of business February 28, 1997. (8) SUBSEQUENT EVENTS Trading on the NYSE and all transfer books will permanently cease after the close of business on January 24, 1997 for the Income Shares and February 28, 1997 for the Capital Shares. Once the Income Shares are redeemed on January 31, 1997, the Capital Shares will bear all Fund operating expenses. Additionally, Capital Shares will bear a portion of the expenses associated with their conversion to an open-end fund and are estimated to be $102,000. QUEST FOR VALUE DUAL PURPOSE FUND, INC. FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ------------ ------------ ------------ ------------ ------------ PER SHARE OPERATING PERFORMANCE: Income Shares: Net Asset Value, Beginning of Year................ $ 11.63 $ 11.63 $ 11.61 $ 11.61 $ 11.60 Net investment income............................. 1.38 1.39 1.36 1.30 1.35 Dividends from net investment income.............. (1.38) (1.39) (1.34) (1.30) (1.34) ------------ ------------ ------------ ------------ ------------ Net Asset Value, End of Year...................... $ 11.63 $ 11.63 $ 11.63 $ 11.61 $ 11.61 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Market Value, End of Year......................... $ 11.500 $ 12.000 $ 12.125 $ 13.25 $ 13.00 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Return (1)....................... 7.8% 10.9% 1.8% 12.3% 7.4% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Capital Shares: Net Asset Value, Beginning of Year................ $ 33.65 $ 25.79 $ 27.09 $ 26.29 $ 22.59 Net realized and unrealized gain (loss) on investments, options and futures transactions... 6.91 9.46 (0.38) 2.45 6.09 Provision for corporate income taxes on net realized long-term capital gains................ (3.31) (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 Year...................... $ 37.25 $ 33.65 $ 25.79 $ 27.09 $ 26.29 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Market Value, End of Year......................... $ 36.125 $ 31.875 $ 23.00 $ 23.75 $ 23.00 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Return (2)....................... 23.6% 45.6% 0.9% 10.5% 44.6% ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Year........................... $879,934,151 $815,178,726 $673,741,648 $696,802,938 $682,373,943 ------------ ------------ ------------ ------------ ------------ Ratio of Operating Expenses to Average Net Assets.......................................... 0.72%(3,4) 0.73% 0.74% 0.74% 0.74% ------------ ------------ ------------ ------------ ------------ Ratio of Net Investment Income to Average Net Assets.......................................... 2.82%(3) 3.20% 3.47% 3.29% 3.61% ------------ ------------ ------------ ------------ ------------ Portfolio Turnover Rate........................... 74% 72% 45% 51% 45% ------------ ------------ ------------ ------------ ------------ Average Commission Rate........................... $ 0.05 -- -- -- -- ------------ ------------ ------------ ------------ ------------ Number of each class of Income and Capital Shares outstanding at the end of year.................. 18,004,302 18,004,302 18,004,302 18,004,302 18,004,302 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
- ------------------ (1) Change in market price assuming reinvestment of dividends on payable date (at market). (2) Change in market price assuming reinvestment of short-term capital gains distributions, if any, on payable date and federal taxes paid on long-term capital gains on year end (both at market). (3) Average net assets for the year ended December 31, 1996 were $883,394,597. (4) Gross of expense offsets (see note 2d in Notes to Financial Statements). QUEST FOR VALUE DUAL PURPOSE FUND, INC. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Quest for Value Dual Purpose Fund, Inc. In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations, of changes in net assets and of changes in undistributed net investment income, realized and unrealized gains (losses) and the financial highlights present fairly, in all material respects, the financial position of Quest for Value Dual Purpose Fund, Inc. (the 'Fund') at December 31, 1996, the results of its operations for the year then ended, the changes in its net assets and the changes in its undistributed net investment income, realized and unrealized gains (losses) for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as 'financial statements') are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1996 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. As described in Notes 7 and 8, the Income Shares of the Fund will be redeemed on January 31, 1997 at $11.60 per share, plus accumulated and unpaid dividends and on February 28, 1997 the Capital Shares will be converted into Class A shares of an open-end management investment company. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 January 22, 1997 IMPORTANT TAX NOTES QUEST FOR VALUE DUAL PURPOSE FUND, INC. INCOME SHAREHOLDERS In early 1997, shareholders will receive information regarding all dividends declared by the Fund during the calendar year 1996. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. For corporate shareholders only, the amount of dividends paid by the Fund during the calendar year ended December 31, 1996 should be multiplied by 37.6% to arrive at the net amount which is eligible for the dividends received deduction. CAPITAL SHAREHOLDERS Quest for Value Dual Purpose Fund Capital Shares generally receive all net capital gains which are realized from the sale of portfolio securities. The net realized long-term capital gains are retained in the value of the Capital Shares rather than being distributed to shareholders. According to provisions of the Internal Revenue Code, the Fund pays Federal income tax on these net realized long-term capital gains at the corporate capital gains tax rate. The amount of this tax (plus state and local taxes) was deducted from the net asset value of the Capital Shares at the Fund's year end on December 31, 1996. As a result of the above actions taken by the Fund, there are three important tax steps which you, as a Capital Shareholder, should take: (1) You should report on your 1996 income tax return the net long-term capital gains realized by the Fund during the year, as indicated on Form 2439. (line 1) (2) You should take credit for the Federal taxes paid by the Fund on these realized gains, as indicated on Form 2439. (line 2) (3) You should increase the tax cost basis of your Capital Shares by the amount of the after-tax gains. This is the difference between the amount of net capital gains realized and the tax paid on these gains by the Fund (see the table below). Federal tax Form 2439, being mailed to you in mid February by the transfer agent, or by March 31, 1997 if your shares are held by a nominee (broker or bank), provides for your account the specific amounts of realized capital gains and corresponding taxes paid as discussed in (1) and (2) above. The form details specific instructions on how to record this information for tax purposes. If your shares are held for you in a nominee registration, and you do not receive tax Form 2439, you should contact your bank or broker to obtain the form. A copy must be filed with your Federal income tax return. Tax-exempt shareholders must file Form 990T to receive a refund for the Federal tax paid by the Fund to the Internal Revenue Service (line 2 of Form 2439). Most banks and brokerage firms file for refunds on behalf of certain tax-exempt clients holding Capital Shares. If this is the case, a Form 2439 will not be mailed to you. We recommend you check with your bank or brokerage firm to see what their policy is regarding your tax-exempt account. The table below shows: the amount of net realized capital gains per Capital Share; the Federal taxes paid on your behalf; the Fund's capital gains tax rate; and the amount by which your cost per share should be increased each year since the Fund's inception:
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Realized long-term capital gains retained per share............ $0.4382 -- $0.8956 $1.4547 $1.7367 $3.1298 $3.9578 $1.6045 $4.4569 $9.3850 Federal capital gains taxes paid by the Fund per share......... $0.1490 -- $0.3045 $0.4946 $0.5905 $1.0641 $1.3852 $0.5616 $1.5599 $3.2848 Fund's federal tax rate......... 34% -- 34% 34% 34% 34% 35% 35% 35% 35% Net amount by which your cost should be increased per share......................... $0.2892 -- $0.5911 $0.9601 $1.1462 $2.0657 $2.5726 $1.0429 $2.8970 $6.1002
SPECIAL MEETING - -------------------------------------------------------------------------------- The Fund held a special meeting of the Capital Shareholders on December 20, 1996. At this meeting, Capital Shareholders voted on the change in the Fund's classification under the Investment Company Act of 1940 from a closed-end management investment company to an open-end management investment company. The Capital Shareholders approved a new Investment Advisory Agreement with OppenheimerFunds, Inc., a new Subadvisory Agreement with OppenheimerFunds, Inc. and OpCap Advisors and a new Distribution and Service Plan and Agreement with OppenheimerFunds Distributor, Inc. with respect to Class A shares. Also, the Capital Shareholders approved the Fund's Articles of Amendment and Restatement, a change in the Fund's fundamental investment objective, the change to certain of the Fund's fundamental investment restrictions and the election of Directors. The following table provides information concerning the matters voted on at this meeting. 1. THE CHANGE IN THE FUND'S CLASSIFICATION UNDER THE INVESTMENT COMPANY ACT OF 1940
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,749,135 658,802 142,824 43,325
2. NEW INVESTMENT ADVISORY AGREEMENT WITH OPPENHEIMERFUNDS, INC.
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,609,610 753,047 188,104 43,325
3. NEW SUBADVISORY AGREEMENT WITH OPPENHEIMERFUNDS, INC. AND OPCAP ADVISORS
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,582,194 757,421 211,146 43,325
4. NEW DISTRIBUTION AND SERVICE PLAN AND AGREEMENT WITH OPPENHEIMERFUNDS DISTRIBUTOR, INC. WITH RESPECT TO CLASS A SHARES
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,605,319 714,144 231,298 43,325
5. APPROVAL OF ARTICLES OF AMENDMENT AND RESTATEMENT
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,651,219 664,173 235,368 43,325
6. THE CHANGE IN THE FUND'S FUNDAMENTAL INVESTMENT OBJECTIVE
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,588,499 713,660 248,602 43,325
7. THE CHANGE TO CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
VOTES FOR VOTES AGAINST ABSTAINED BROKER NON-VOTES - ---------- ------------- --------- ---------------- 12,500,699 779,507 270,555 43,325
In addition, the election of the following new Directors:
DIRECTOR VOTES FOR VOTES AGAINST ABSTAINED - ------------------------------------------------------------------------------ ---------- ------------- --------- Paul Y. Clinton............................................................... 13,229,525 0 364,561 Thomas W. Courtney............................................................ 13,232,211 0 361,875 Lacy B. Herrmann.............................................................. 13,230,205 0 363,881 George Loft................................................................... 13,229,011 0 365,075 Bridget Macaskill............................................................. 13,230,225 0 363,861
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 Richard L. Peteka 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. Annual Report DECEMBER 31, 1996 MANAGED BY OpCap ADVISORS -----END PRIVACY-ENHANCED MESSAGE-----