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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
__ Act of 1934
For the fiscal year ended April 30, 1995
or
__ Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file Number 1-9597
OPPENHEIMER CAPITAL, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3412614
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
OPPENHEIMER TOWER
WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (212) 667-7000
Securities registered under Section 12(b) or Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST NEW YORK STOCK EXCHANGE
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Title of class Name of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
The aggregate market value of Units of limited partnership interest held
by non-affiliates of the registrant at July 14, 1995 (based on the closing
price at which the Units of limited partnership interest were sold on the New
York Stock Exchange on such date) was approximately $369,000,000.
The issuer is a limited partnership. There were 15,234,503 Units of
limited partnership interest outstanding at July 14, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Part IV, Item 14, incorporates by reference several exhibits from the
registrant's Registration Statement on Form S-3, as amended, filed on April
16, 1991 (File No. 33-39354) and Form S-8 filed on July 2, 1990 (File No.
33-35584).
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PART I
ITEM 1. BUSINESS
Oppenheimer Capital L.P. (the "Partnership") is a publicly-traded
limited partnership owned 1% by its general partner, Oppenheimer Financial
Corp. ("Opfin"), and 99% by its public limited partners ("unitholders"). The
Partnership's primary business is its holding of a majority interest in
Oppenheimer Capital (the "Operating Partnership"), a registered investment
adviser. Opfin holds the remaining interest in the Operating Partnership.
The Operating Partnership is part of an affiliated group of companies
operating in the financial services industry. The financial statements of
the Partnership should be read in conjunction with the consolidated financial
statements of the Operating Partnership.
On July 9, 1987, the Partnership completed an initial public offering of
7,920,000 units of limited partnership interest ("units") and contributed the
net proceeds of $98,028,000 and a $1,004,000 contribution by Opfin to the
Operating Partnership in exchange for a 32.3% general partnership interest in
the Operating Partnership.
On April 23, 1991, the Partnership issued 6,200,000 units to Opfin in
exchange for an additional 31.77% general partnership interest in the
Operating Partnership (the "Exchange"). Such units were then sold by Opfin
in a public offering. On May 1, 1991, pursuant to the exercise of an
over-allotment option granted to the underwriters of the public offering of
Partnership units, the Partnership issued 355,000 units to Opfin in exchange
for an additional 1.82% general partnership interest in the Operating
Partnership. Such units were then sold by Opfin to the public.
Additional general partnership interests in the Operating Partnership
totaling 1.40% were acquired by the Partnership as a result of the issuance
of units pursuant to the Restricted Unit and Option Plans. At July 14, 1995,
the Partnership's and Opfin's general partnership interests in the Operating
Partnership were 67.29% and 32.71%, respectively.
Prior to the date of the Exchange, the Operating Partnership owned a
$98,000,000 par value 10% note (the "Equities Note") maturing in the year
2012 due from Oppenheimer Equities, Inc. ("Equities"), a direct wholly-owned
subsidiary of Opfin. At the time of the Exchange, the Equities Note was
divided into two promissory notes based on each partner's interest in the
Operating Partnership prior to the Exchange. The Operating Partnership
distributed a note in the principal amount of $32,193,000 to the Partnership
and a note in the principal amount of $65,807,000 to Opfin. These two notes
contained the same terms and provisions as the Equities Note.
GENERAL
As the primary sources of income of the Partnership consist of its
proportionate share of the net income of the Operating Partnership and
interest income on the $32,193,000 note due from Equities, the following
discussion will focus on the activities of the Operating Partnership and a
description of the note.
The Operating Partnership derives its revenue and net earnings
primarily from providing investment management services to institutions,
individuals and registered investment companies. In 1986, Oppenheimer
Capital Corp. ("Opcap"), a predecessor corporation, organized both Quest For
Value Advisors, Inc. ("Quest Advisors"), a wholly-owned investment management
subsidiary, for the purpose of managing mutual funds, and Quest For Value
Distributors, Inc. ("Quest Distributors"), a wholly-owned registered
broker-dealer subsidiary, for the purpose of distributing mutual funds. On
July 9, 1987, Quest Advisors and Quest Distributors were reorganized as
subpartnerships of the Operating Partnership which retained a 99% general
partnership interest, while Opfin purchased a 1% general partnership
interest, in the subpartnerships. Quest Advisors manages four registered
investment companies encompassing 25 investment portfolios, or "mutual
funds". In June 1991, Oppenheimer Capital Limited, a wholly-owned U.K.
investment management company, was established to provide investment
management services to foreign institutional investors. In January 1994,
Oppenheimer Capital International was formed as a division of the Operating
Partnership to manage non-U.S. equities for clients. Investment management
and advisory fees are generally based on the net assets of the investment
portfolios under management and fluctuate due to changes in the total value
of the net assets under management.
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The asset management industry grew significantly during the five years
ended June 30, 1994 with tax-exempt and taxable assets managed by U.S.
investment advisers, bank trust departments and insurance companies
increasing from $3.9 trillion at June 30, 1989 to $7.5 trillion at June 30,
1994. (Source: Directory of Pension Funds and their Investment Managers.)
During this period, the growth in assets under management at investment
management firms exceeded the corresponding growth at banks and insurance
companies. At June 30, 1989, investment management firms managed $2.3
trillion or approximately 59% of total tax-exempt and taxable assets under
management. At June 30, 1994, they accounted for $5.5 trillion or
approximately 73% of total tax-exempt and taxable assets under management.
The mutual fund industry has also experienced rapid growth during the past
five years. During the five years ended December 31, 1994, assets of mutual
funds (excluding money market and municipal mutual funds) increased from
$553.9 billion to $1,550.5 billion according to the Investment Company
Institute.
The investment management industry is fragmented and the Operating
Partnership's share of assets under management is less than one half of 1% of
all industry assets under management.
The Operating Partnership's staff of 417 employees includes 45
investment professionals, of whom 32 are portfolio managers, 11 are security
analysts and 2 are economists/strategists. The average tenure of these
professionals at the Operating Partnership is 10 years, and their average
investment experience is 19 years. Besides the staff of 45 investment
professionals, Quest Advisors, Quest Distributors and the Operating
Partnership have a support staff of 372 individuals of whom 69 work
exclusively on the sale and distribution of Quest for Value Mutual Funds.
The Operating Partnership's brokerage affiliate, Oppenheimer & Co., Inc.
("Opco"), a registered broker-dealer, has approximately 2,800 employees,
including approximately 800 individuals who are engaged primarily in customer
sales activities at its New York headquarters or in its regional offices.
The Operating Partnership's investment strategy seeks to combine the
preservation of capital in falling markets with market or above-market
performance in rising markets. To achieve these results, all investment
professionals are involved in the security selection process. All portfolio
managers are experienced security analysts and have research responsibilities
which necessarily integrate the research and portfolio management functions.
All work together to maintain the Operating Partnership's list of approved
investments. Asset mix decisions are made by the chief investment officer,
economists and senior portfolio managers; however, all other investment
professionals participate in the process. The Operating Partnership believes
that this integrated structure gives the Operating Partnership the ability to
allocate assets to capitalize on shifts in relative value between asset
categories. The result has been above median long-term investment returns.
According to the most recent five-year and ten-year ranking by SEI
Corporation ("SEI"), the investment performance of the Operating
Partnership's composite of discretionary equity-oriented accounts ranked in
the top 25% and 24%, respectively, of the equity funds in SEI's data base at
March 31, 1995*. The Operating Partnership's composite of discretionary
equity-oriented accounts, which consist of employee benefit plans that have
market values of at least $10,000,000, has produced positive returns in
nineteen of the last twenty calendar years while the S&P 500 declined in
three of such years. There is no assurance that the Operating Partnership's
relative performance will continue in the future.
REVENUES. The Operating Partnership generates fee income from the
accounts under management based primarily on the value of assets in each
account and also, to a limited extent, on performance. For the five years
ended April 30, 1995, the Operating Partnership's investment management fee
income has grown from $67.8 million to $122.6 million, representing a
compound annual increase of 12.6%. Investment management fee income for the
year ended April 30, 1995, as compared to the year ended April 30, 1994,
increased 10.0% from $111.4 million.
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* As of December 31, 1994, SEI's equity fund data base covered 1,009 equity
portfolios aggregating $107.2 billion in assets managed by 366 investment
advisers and is compiled from information provided in most cases by
custodians of institutional advisory accounts. The Operating Partnership's
past performance and SEI rankings do not adjust for advisory fees or other
expenses and assume the reinvestment of distributions. Also, SEI does not
rank mutual fund performance and the advisers rated may have managed their
accounts to achieve different investment objectives.
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The sources of the Operating Partnership's fee income are
diversified and balanced among the Public, Jointly Trusteed and Corporate
Employee Benefit Plans, and Endowments and Foundations which together account
for 68% of fee income. Mutual Funds, Individuals, Wrap Fee accounts and
Option and Hedging management contribute to the balance. Other than
registered investment companies, no single account represented more than 2%
of the Operating Partnership's total investment management revenues during
the year ended April 30, 1995.
ASSETS UNDER MANAGEMENT. The following table sets forth the amount
of assets under the Operating Partnership's management at April 30, 1995 and
April 30, 1994 in millions.
April 30, 1995 April 30, 1994
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Public employee benefit plans $ 8,988 $ 8,306
Jointly trusteed benefit plans 7,064 6,249
Corporate employee benefit plans 4,737 4,135
Endowments and foundations 925 883
Individuals and small tax-exempt
institutions 2,427 2,183
Option management 1,397 2,418
Registered investment companies 6,256 5,228
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Total $ 31,794 $ 29,402
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At April 30, 1990, 1991, 1992, and 1993, total assets under
management were (in millions) $19,425, $21,944, $23,706 and $26,386,
respectively. For the five years ended April 30, 1995, assets under
management grew at a compound annual rate of 10.4%.
Public employee benefit plans are organized by government agencies
and municipalities. Jointly trusteed benefit plans consist of
collectively-bargained employee benefit plans pursuant to which at least two
unrelated employers contribute to a common fund (with no one employer making
more than 50% of the contributions). Corporate employee benefit plans are
organized by corporations to provide employee benefits. Generally, the
minimum size for new investment management accounts is $10,000,000 for equity
accounts, $15,000,000 for fixed income accounts and $3,000,000 for option
management accounts. Either the Operating Partnership or its clients may
terminate investment management agreements without penalty after a brief
notice period.
Many factors influence a client's decision to select an investment
adviser, including the investment adviser's performance record, the adviser's
ability to implement consistently its investment strategy, the adviser's
ability to manage the assets within the investment parameters, if any, set by
the client and the marketing of such services.
The Operating Partnership focuses its marketing efforts on
presentations directly to prospective clients and to independent consultants
who provide advice to such clients. This effort consists of a staff of 14
marketing professionals whose primary responsibilities are to make
presentations to clients and consultants and to direct the efforts of the
marketing and client service support staff.
Each account is structured to satisfy the specific investment
objectives, guidelines and risk constraints, if any, agreed upon by each
client and the Operating Partnership. The Operating Partnership determines
the appropriate investment strategy, subject to each client's guidelines and
objectives. Furthermore, depending on the type of account, the Operating
Partnership determines whether investments are made in equities, fixed income
securities or cash equivalents, and in what proportion, based on prevailing
economic and monetary factors that influence the capital markets. The
Operating Partnership then selects the specific equities, fixed income
securities and/or short-term investments to be purchased for each portfolio,
subject to the strategy to be implemented and the objectives and guidelines
of each account.
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QUEST FOR VALUE FAMILY OF FUNDS
In 1982, Mercantile House Holdings PLC ("Mercantile") acquired
Opcap, Opco and Oppenheimer Management Corporation ("OMC"), an investment
adviser to the Oppenheimer group of mutual funds. In March 1986, an 82%
interest in Opcap and Opco was purchased by members of their senior
managements from Mercantile (the "Acquisition"). Prior to 1987, except for
the Quest for Value Fund, all mutual fund activity was carried on by OMC. In
connection with the Acquisition, OMC was granted an exclusive perpetual
license to use the "Oppenheimer" name in connection with its mutual fund
business. The Operating Partnership is not affiliated with OMC, which
continues to manage a family of mutual funds using the name "Oppenheimer".
After the Acquisition, the Operating Partnership began efforts to
expand its participation in all aspects of the mutual fund business using the
name "Quest for Value". Since the Acquisition, the Operating Partnership has
formed four mutual funds: Quest for Value Cash Management Trust (which has
been replaced by the Quest Cash Reserves), Quest for Value Dual Purpose Fund,
Inc., Quest for Value Family of Funds (comprised of twelve portfolios
including the Quest for Value Fund) and Quest for Value Accumulation Trust
(comprised of seven portfolios). The aggregate assets of the Quest for Value
Mutual Funds at April 30, 1995 was $4,300 million and total registered
investment companies assets under management at April 30, 1995 was $6,256
million.
The Quest for Value Cash Management Trust, a money market fund
established in January 1987, was replaced by Quest Cash Reserves, a money
market fund with three portfolios, during the fiscal year ended April 30,
1990. During the same year, Opco selected Quest Cash Reserves as the primary
money market fund for its customers' cash balances. Two portfolios were
added during the fiscal year ended April 30, 1991. At April 30, 1995, the
net assets of this fund were $1,865 million and substantially all the shares
were owned by Opco customers.
In February 1987 Quest Advisors formed the Quest for Value Dual
Purpose Fund., Inc., a closed-end dual purpose registered investment company.
The Quest for Value Dual Purpose Fund offers the investor a leveraged
investment without interest costs that combines the traditional investment
techniques of the Operating Partnership, along with futures and options
strategies. Total net assets of this fund at April 30, 1995 amounted to $750
million.
The twelve portfolios and the year of introduction of the portfolios
in the Quest for Value Family of Funds are: Quest for Value Fund (1980), U.S.
Government Income Fund (1988), Opportunity Fund (1989), Small Capitalization
Fund (1989), Global Equity Fund (1990), Investment Quality Income Fund
(1990), Growth and Income Fund (1991), Global Income Fund (1991), Officers
Fund (1995) and National, New York, and California Tax-Exempt Funds (1990).
Total net assets of the Quest for Value Family of Funds at April 30, 1995
amounted to $1,324 million.
In 1988, Quest Advisors was selected by Mutual of New York ("MONY")
as investment adviser for the Quest for Value Accumulation Trust, a series
fund of five portfolios supporting MONY's variable annuity insurance
products. In September 1994, the Quest for Value Accumulation Trust was
effectively split into two funds: the Enterprise Accumulation Trust,
supporting MONY's MONYMaster variable annuities and its EquityMaster variable
life insurance policy; and the "new" Quest for Value Accumulation Trust,
supporting MONY's ValueMaster variable annuities and Provident Mutual Life
Insurance Company of Philadelphia's VIP II variable annuities. MONY became
adviser to the Enterprise Accumulation Trust. Quest Advisors continues as
subadviser to the Equity, Managed and Small Cap portfolios of that trust.
This fund series had $1,100 million of net assets under management at April
30, 1995.
The "new" Quest for Value Accumulation Trust, with assets under
management of $93 million at April 30, 1995, consists of seven portfolios,
including an Equity, Small-Cap, Global Equity, Managed, Bond, U.S. Government
Income and Money Market portfolio.
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During fiscal 1992, the Board of Directors of the Quest For Value
Funds approved agreements whereby funds managed by Quest Advisors, having
similar investment objectives and policies, would acquire all of the assets,
subject to liabilities, of each fund of the AMA Family of Funds. The mergers
of these funds were completed at various dates in September, November and
December 1991.
During fiscal 1993, the Unified Family of Funds were merged into
funds managed by Quest Advisors. The mergers of these funds were completed
in December 1992 and January 1993.
Although Quest Distributors utilizes the placement ability of the
Opco distribution network to distribute mutual funds, Quest Distributors has
organized a marketing effort which distributes the Quest for Value mutual
funds through approximately 610 independent broker-dealers and other
distribution channels such as banks.
SUBSEQUENT EVENT
On June 16, 1995, OMC and the Operating Partnership announced that
they were in discussions for OMC to acquire the investment advisory contracts
and associated business relationships of twelve of Oppenheimer Capital's
Quest for Value Funds. The discussions cover funds with total net assets of
approximately $1.5 billion. The companies said that any transaction would be
subject to the signing of a definitive agreement and all necessary approvals
of the funds' shareholders.
The six equity funds under discussion would continue to be managed
by Quest Advisors, a subpartnership of the Operating Partnership, under a
subadvisory agreement with OMC. This would allow the current portfolio
management teams to remain in place after the prospective acquisition is
completed. At July 14, 1995, total net assets in those funds was $1.2
billion.
It is contemplated that each of the six Quest for Value fixed income
funds would be merged into funds currently managed by OMC. Total net assets
of the six Quest for Value fixed income funds was $.3 billion at July 14,
1995.
In addition, as a result of the proposed transaction, operating
profits from mutual fund activities are expected to increase as expense
reductions from the curtailment of distribution efforts with respect to the
funds being sold is expected to exceed the reduction in management fees.
CASH MANAGEMENT SERVICES. In December 1988, the Operating
Partnership made a commitment to expand substantially its presence in the
cash management services business. The overall market for such services is
very large, and the Operating Partnership believed its investment and
distribution skills would help it obtain a meaningful share of such market.
The Operating Partnership established a separate division, Quest Cash
Management Services, for this business and hired key management and marketing
personnel who have developed an eight product line: a primary money market
fund, a government money market fund, a general municipal money market fund,
a New York municipal money market fund, a California municipal money market
fund, an insured money market deposit account, a certificate of deposit
marketing operation and a unit investment trust business. This product line
is designed principally for distribution through financial intermediaries
such as brokerage firms, banks, investment counselors, financial planners and
insurance companies.
Quest Cash Reserves is a money market fund comprised of five
portfolios: Primary, Government and General Municipal (each introduced in
fiscal 1990); and a New York Municipal and California Municipal (each
introduced in fiscal 1991). Total assets under management at April 30, 1995
was $1,865 million.
The Quest Cash Management Services Division's certificate of deposit
("CD") marketing operation was established in August 1989. On June 16, 1992,
new legislation was finalized which allows banks with certain capital ratios
the continued ability to issue brokered CD's. Additional information on the
new legislation can be found in section 301 of The Federal Deposit Insurance
Corporation Improvement Act of 1991.
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In April 1993, Quest Cash Management Services established the QUILTS
(unit investment laddered trust) business, the sponsorship of unit investment
trusts.
The Operating Partnership has incurred significant expenditures for
the startup and expansion of the Mutual Fund and Cash Management Services
businesses. This expansion program is now complete.
WRAP FEE. The Operating Partnership's "wrap fee" accounts represent
a service which has a single-fee structure covering all charges, including
investment management services, brokerage services, custodial services,
record keeping and reporting. This product is specifically designed to meet
the needs of individuals and smaller institutions seeking professional
management for accounts of $100,000 or more. Investors may choose either an
equity or balanced account. This product is available through Opco, Smith
Barney, Prudential Securities, Inc., Paine Webber, Kemper Securities, GVTC,
and Morgan Keegan and the Operating Partnership is negotiating additional
relationships. Assets under management totaled $1,804 million at April 30,
1995.
OPPENHEIMER CAPITAL TRUST COMPANY. On May 1, 1994, the Operating
Partnership acquired Liberty Street Trust Company from Oppenheimer Holdings,
Inc., an affiliate, for its net book value of approximately $1,629,000 and
renamed it Oppenheimer Capital Trust Company ("Opcap Trust"). Ownership of a
trust company provides a more cost-effective means for the Operating
Partnership's investment professionals to manage total fund assets for
mid-sized institutional accounts, especially ERISA accounts, as well as the
capability to furnish a broader range of services to 401(k) and other defined
contribution programs. In addition, Opcap Trust offers commingled portfolios
of specialty classes, such as small-cap and international, to institutional
clients with larger equity and balanced separate accounts seeking
diversification.
AMA INVESTMENT ADVISERS. On May 1, 1994, the American Medical
Association ("AMA") and the Operating Partnership formed AMA Investment
Advisers, L.P. to acquire the assets of AMA Investment Advisers, Inc. and
American Medical Investment Company, Inc. The Operating Partnership and
Opfin acquired a 79.1% and 1% partnership interest, respectively, for a total
purchase price of $500,000 and a $1,200,000 promissory note contributed in
accordance with their respective percentage interests. AMA Investment
Advisers, L.P. and its subsidiary offer investment services and products
tailored especially for members of the AMA and other health care
professionals and medical organizations.
SARATOGA CAPITAL MANAGEMENT. The Operating Partnership formed
Saratoga Capital Management ("Saratoga") in May 1994. Saratoga is a joint
venture that provides asset allocation services to broker-dealers utilizing
funds managed by independent investment advisers and Quest Advisors.
OPTION AND HEDGING MANAGEMENT SERVICE
The Operating Partnership has developed and continues to refine
proprietary computer-assisted analytical and trading techniques for
implementing option overwriting and other options and futures related
activities for managed accounts, which may be employed to enhance portfolio
return. The Operating Partnership serves pension funds and other
institutional clients with proprietary option management techniques to control
risk and generate incremental returns on their portfolios. Assets for which
the Operating Partnership managed option programs totaled $1,397 million at
April 30, 1995 compared with $2,418 at April 30, 1994. This decrease is
due to the loss of two option management accounts with assets of approximately
$1 billion.
INVESTMENT PRACTICES
ASSET ALLOCATION
The Operating Partnership is structured to give consideration to,
and closely monitor compliance with, the specific investment and social
responsibility guidelines of individual clients. The Operating Partnership
attempts to adapt to changing economic conditions by interrelating the
Operating Partnership's analysis of overall financial liquidity with the
Operating Partnership's judgments of the relative valuation of equities to
the market.
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During periods of low liquidity when short-term interest rates are
rising faster than longer-term rates, stock prices have generally fallen. At
such times the Operating Partnership emphasizes cash as an alternative
investment due to its high return and may reduce stock and fixed income
positions in its accounts in favor of cash equivalent positions.
VALUE DISCIPLINE
COMPETITION. The investment management business is highly
competitive. Thousands of investment advisers offer their services to
advisory clients. In addition, various services and investments offered by
insurance companies, banks and securities dealers compete with the services
and investment opportunities offered by the Operating Partnership.
Competition for investment advisory services is influenced largely by
investment performance, the quality and range of services offered and the
marketing of such services. Competition for sales of mutual fund shares is
affected by various factors, including investment objectives and performance,
compensation to brokers, marketing and methods of distributing such shares.
Many of the Operating Partnership's competitors apply substantial resources
to advertising and marketing their mutual funds which may adversely affect
the ability of the Operating Partnership to attract new clients.
REGULATION. Virtually all aspects of the Operating Partnership's
business are subject to various federal and state laws and regulations.
These laws and regulations are primarily intended to benefit the Operating
Partnership's clients and shareholders of mutual funds and generally grant
broad administrative powers to the agencies that regulate the Operating
Partnership, including the power to limit or restrict the Operating
Partnership from carrying on its business in the event that it fails to
comply with such laws and regulations. Failure to comply with such laws or
regulations could result in the suspension of individual employees,
limitations on the Operating Partnership's (or its Subpartnerships') conduct
of business for specified periods of time, the revocation of registration as
an investment adviser and/or broker-dealer, censures and/or fines.
The Operating Partnership is registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940 and is
registered as an investment adviser with various state securities
authorities. Quest Advisors, AMA Investment Advisers, L.P. and Saratoga are
registered investment advisers. Quest Distributors and American Medical
Investment Company, L.P. (a subsidiary of AMA Investment Advisers, L.P.) are
registered broker-dealers. Oppenheimer Capital Futures Management, a
currently inactive subpartnership of the Operating Partnership, is subject to
regulation by, and is registered with, the Commodity Futures Trading
Commission as a Commodity Pool Operator and a Commodity Trading Adviser.
Oppenheimer Capital Limited, a subsidiary of the Operating Partnership,
operates in the United Kingdom and is a registered investment adviser and a
member of IMRO, an investment management regulatory organization. Opcap
Trust is a trust company licensed under the banking laws of the State of New
York.
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OPPENHEIMER EQUITIES, INC. $32,193,000 PAR VALUE 10% NOTE DUE 2012
The Partnership receives interest income from a $32,193,000 par
value 10% note from Equities, due in the year 2012. Interest on the note is
payable quarterly on the last day of February, May, August and November of
each year.
Equities may prepay all or any portion of the principal of the note.
Under the note, Equities has covenanted that its consolidated net worth will
not be reduced below $40 million and that it will not incur any indebtedness
(outside the ordinary course of business) which is not subordinated to the
note. Such restriction does not apply to Equities' subsidiaries. The note
contains no other restrictions or financial covenants.
Equities, and its wholly-owned subsidiary, Oppenheimer Holdings,
Inc., are holding companies whose activities are generally limited to
investments in subsidiaries, including Opco, and to the performance of
managerial services for Opco and its affiliates. Income from subsidiaries,
including Opco, and interest payments from a promissory note issued by
Oppenheimer Group Inc. ("OGI"), Opfin's parent, to evidence a loan by
Equities to OGI are Equities sole sources of income. However, the promissory
note issued by OGI will mature in 1997 and may be prepaid at any time prior
to such date. The payment or prepayment of such note may or may not result
in the prepayment by Equities of the 10% par value note due 2012 issued to
the Partnership.
ITEM 2. PROPERTIES
The Operating Partnership currently maintains office space at the
following locations: approximately 40,000 square feet at the Oppenheimer
Tower, New York, New York; 39,800 square feet at the Merrill Lynch Tower, New
York, New York; 44,000 square feet at 33 Maiden Lane, New York, New York;
7,900 square feet at 200 N. LaSalle Street, Chicago, Illinois; and 1,800
square feet at 330 Washington Boulevard, Marina Del Rey, California. Certain
information regarding the leases is set forth in Note 2 of Notes to
Consolidated Financial Statements of the Operating Partnership in Item 8.
The Operating Partnership believes the capacity of these facilities
is sufficient to meet the Operating Partnership's current and expected future
office space requirements.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Partnership's units of limited partnership interest are traded
on the New York Stock Exchange (Ticker Symbol: OCC). The high and low market
price by quarter for the years ended April 30, 1995 and 1994 were as follows:
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1995 QUARTER QUARTER QUARTER QUARTER
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Market price:
High $26.375 $24.625 $22.875 $24.000
Low $23.250 $21.750 $18.750 $20.750
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1994 QUARTER QUARTER QUARTER QUARTER
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Market price:
High $27.375 $30.000 $29.500 $28.750
Low $23.750 $24.750 $26.000 $22.375
At July 14, 1995, the closing price of the Units of limited
partnership interest was $24.25 and there were approximately 26,000
beneficial holders of units.
CASH DISTRIBUTIONS
The Partnership declared cash distributions to unitholders for the
fiscal years ended April 30, 1995 and 1994 amounting to $2.1750 and $2.1375
per unit, respectively. On July 21, 1995, the Partnership announced that the
quarterly distribution rate was increased to an annual rate of $2.20 per
unit. Quarterly distributions are paid within 30 business days after the
last day of each July, October, January and April to unitholders of record as
of the last day of each fiscal quarter in respect to which such distributions
are made.
The Partnership makes quarterly distributions in an amount equal to
99% of available cash flow to the unitholders and 1% to the general partner,
Opfin. The Operating Partnership intends to distribute on a quarterly basis
substantially all its net income to the Partnership and to Opfin. The
Operating Partnership may distribute to the Partnership and to Opfin excess
cash taking into account the Operating Partnership's financial condition,
results of operations, cash requirements and general economic conditions. To
the extent that additional funds are required by the Operating Partnership
(e.g., to support increased management fees receivable, to expand its
facilities or to accommodate the growth of its business), the Operating
Partnership currently borrows from a commercial bank under a $20 million line
of credit.
The Operating Partnership's cash flow will continue to be derived
from the operations of its investment management business. The Partnership's
cash flow will continue to be derived substantially from the Operating
Partnership plus interest income from Equities, less New York City
unincorporated business tax.
- 10 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT FOR PER UNIT DATA AND
ASSETS UNDER MANAGEMENT)
OPPENHEIMER CAPITAL, L.P.
----------------------------
FOR THE YEAR ENDED APRIL 30,
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Revenues $34,282 $35,091 $30,022 $27,145 $15,602
Expenses $ 3,461 $ 4,038 $ 3,704 $ 3,614 $ 3,169
Net income $30,821 $31,053 $26,318 $23,531 $12,433
Net income per unit $ 2.02 $ 2.04 $ 1.74 $ 1.57 $ 1.43
Distributions declared
per unit $ 2.175 $2.1375 $1.9375 $ 1.875 $ 1.825
Weighted average number
of units outstanding 15,136 15,043 15,009 14,831 8,601
Financial condition data
at April 30,: 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Total assets $96,633 $98,116 $98,365 $99,675 $98,490
Total liabilities $10,321 $10,319 $ 9,683 $ 9,007 $ 5,124
Partners' capital $86,312 $87,797 $88,682 $90,668 $93,366
_______________________________________________________________________________
OPPENHEIMER CAPITAL
----------------------------
FOR THE YEAR ENDED APRIL 30,
-------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------- ------- -------
Operating revenues $129,912 $112,290 $94,733 $82,024 $76,770
Interest on the Oppenheimer
Equities, Inc. 10% Note (1) $ - $ - $ - $ - $ 9,397
-------- -------- ------- ------- -------
Total revenues $129,912 $112,290 $94,733 $82,024 $86,167
======== ======== ======= ======= =======
Expenses $ 83,066 $ 64,683 $54,707 $46,144 $42,634
======== ======== ======= ======= =======
Income before income taxes
and minority interest $ 46,846 $ 47,607 $40,026 $35,880 $43,533
======== ======== ======= ======= =======
Assets under management
at period end
(In Billions) $ 31.8 $ 29.4 $ 26.4 $ 23.7 $ 21.9
======== ======== ======= ======= =======
Financial condition data
at April 30,: 1995 1994 1993 1992 1991
-------- -------- ------- ------- -------
Total assets (1) $ 56,129 $ 43,034 $37,677 $31,765 $28,979
Total liabilities $ 41,582 $ 30,557 $27,830 $22,767 $18,741
Minority interest $ 87 $ 25 $ 18 $ 13 $ 17
Partners' capital (1) $ 14,460 $ 12,452 $ 9,829 $ 8,985 $10,221
(1) Reflects the pro rata distribution by Oppenheimer Capital to its
partners on April 16, 1991 of a $98,000,000 par value 10% Note due
2012 from Equities.
- 11 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPPENHEIMER CAPITAL, L.P.
GENERAL
The primary source of income for Oppenheimer Capital, L.P. (the
"Partnership") is its proportionate share of the net income of Oppenheimer
Capital (the "Operating Partnership") and interest income on a $32,193,000
par value 10% note due from Oppenheimer Equities, Inc. in the year 2012 (the
"Equities Note").
REVENUES AND EXPENSES
The Partnership recorded equity in earnings of the Operating
Partnership for the years ended April 30, 1995, 1994 and 1993 of $31,054,000,
$31,864,000 and $26,793,000, respectively. Interest income on the Equities
Note for the years ended April 30, 1995, 1994 and 1993 totaled $3,219,000 for
each year.
Net income amounted to $30,821,000 or $2.02 per unit based on an
average of 15,136,000 units outstanding for the year ended April 30, 1995;
$31,053,000 or $2.04 per unit based on an average of 15,043,000 units
outstanding for the year ended April 30, 1994; and $26,318,000 or $1.74 per
unit based on an average of 15,009,000 units outstanding for the year ended
April 30, 1993.
Amortization of goodwill for the years ended April 30, 1995, 1994
and 1993 amounted to $2,588,000 for each year. Other expenses consist of
New York City unincorporated business tax ("UBT") computed at a rate of 4% of
taxable income. For the years ended April 30, 1995, 1994 and 1993, New York
City UBT amounted to $873,000, $1,450,000 and $1,116,000, respectively. The
decline in New York City UBT in fiscal 1995 reflects a new tax law which
became effective on January 1, 1995, pursuant to which the Operating
Partnership pays New York City UBT on its taxable income and the Partnership
receives a credit for its share of any tax paid by the Operating Partnership.
INCOME TAXES
Neither the Partnership nor the Operating Partnership is subject to
Federal or local income taxes on its earnings. Such taxes are the obligation
of individual partners. Under current law, the Partnership will be required
to pay Federal and state income taxes beginning with the 1998 tax year.
LIQUIDITY AND CAPITAL RESOURCES
The only business activity carried on by the Partnership is its
investment in the Operating Partnership. The Partnership receives quarterly
cash distributions from the Operating Partnership and receives interest
income from Oppenheimer Equities, Inc. (See Note 4B to the financial
statements). The Partnership distributes its available cash flow to its
partners, which equals cash distributions from the Operating Partnership plus
interest income from Oppenheimer Equities, Inc. less New York City UBT.
Consequently, the Partnership does not require any additional liquidity or
capital resources.
The Partnership makes quarterly distributions in an amount equal to
99% of available cash flow to the limited partners (the "Unitholders") and 1%
to the general partner, Oppenheimer Financial Corp. ("Opfin"). For the years
ended April 30, 1995, 1994 and 1993, the Partnership declared total
distributions to Unitholders of $2.175, $2.1375 and $1.9375 per unit,
respectively.
- 12 -
<PAGE>
OPPENHEIMER CAPITAL
GENERAL
The Operating Partnership's results of operations include those of
its basic institutional investment management business and those of Quest for
Value Advisors ("Advisors"), Quest for Value Distributors, Oppenheimer
Capital Futures Management, Oppenheimer Capital Limited, Saratoga Capital
Management ("Saratoga"), Oppenheimer Capital Trust Company ("Opcap Trust"),
AMA Investment Advisers, L.P. and American Medical Investment Company, L.P.
(collectively "AMA Investment Advisers").
For all periods presented, the Operating Partnership's operations
have been characterized by substantial increases in assets under management.
This growth has been from three principal sources. First, new clients have
entered into investment management agreements and existing clients have added
funds to their accounts under management. Second, rising securities price
levels have increased the market values of investment portfolios. Third,
mutual funds increased in size due to increased fund sales and market
appreciation. As revenues are generally derived by charging a fee based on
the net assets of clients' portfolios, all periods presented showed increased
operating revenue. Revenues for all periods presented consist principally of
investment management fees.
The value of assets under management increased 8.1% to $31.8 billion
at April 30, 1995 from $29.4 billion at April 30, 1994. Institutional and
private account assets under management increased 5.6% to $25.5 billion from
$24.2 billion and mutual fund assets under management increased 19.7% to $6.3
billion from $5.2 billion for the same period.
The value of assets under management increased 11.4% to $29.4
billion at April 30, 1994 from $26.4 billion at April 30, 1993. Institutional
and private account assets under management increased 8.7% to $24.2 billion
from $22.3 billion and mutual fund assets under management increased 26.1% to
$5.2 billion from $4.1 billion for the same period.
REVENUES
Total operating revenues increased 15.7% for the year ended April
30, 1995 to $129,912,000 from $112,290,000 for the year ended April 30, 1994
and increased 18.5% for the year ended April 30, 1994 from $94,733,000 for
the year ended April 30, 1993. Total operating revenues includes investment
management fees, net distribution assistance, commission income, interest and
dividends.
Investment management fees increased 10.0% to $122,578,000 for the
year ended April 30, 1995 from $111,396,000 for the year ended April 30,
1994. This increase is a result of average assets under management
increasing 4.0% to $29.7 billion for the year ended April 30, 1995 from $28.5
billion for the year ended April 30, 1994 and higher fee realizations as a
result of a continued shift in the asset mix toward businesses with higher
effective fee rates, such as mutual funds, variable annuities and wrap fee
accounts, and increased performance fees in fiscal 1995 ($2.8 million in 1995
vs. $.7 million in 1994). Also contributing to the higher effective fee rate
was the loss of two option management accounts with assets of approximately
$1 billion. These accounts had a fee rate significantly below the fee rate
on the Operating Partnership's existing business.
Investment management fees increased 19.5% for the year ended April
30, 1994 from $93,197,000 for the year ended April 30, 1993, primarily as a
result of average assets under management increasing 14.2% for the year ended
April 30, 1994 from $25.0 billion for the year ended April 30, 1993. This
increase also reflects higher fee realizations in the Operating Partnership's
newer businesses and its institutional investment management business.
- 13 -
<PAGE>
Net distribution assistance and commission income increased
significantly to $7,053,000 for the year ended April 30, 1995 from $770,000
for the year ended April 30, 1994. This increase reflects a $4.0 million
increase in Certificate of Deposit commission income as a result of increased
demand for funds by banks. Commission income also increased as a result of
the acquisition of AMA Investment Advisers and increased sales by the Unit
Investment Trust Division. The above increases in commissions were offset in
part due to a shift in the sales mix of Quest for Value Mutual Funds toward
sales of Class B and C shares which, unlike Class A shares, have no
upfront commission.
Net distribution assistance and commission income decreased 45.2% for
the year ended April 30, 1994 from $1,405,000 for the year ended April 30,
1993 primarily as a result of lower mutual fund commission income which
declined in part due to the introduction of Class B and C shares which have no
upfront commission.
EXPENSES
Total operating expenses increased 28.4% for the year ended April
30, 1995 to $83,066,000 from $64,683,000 for the year ended April 30, 1994
and increased 18.2% for the year ended April 30, 1994 from $54,707,000 for
the year ended April 30, 1993.
The Operating Partnership's most significant expense category is
compensation and benefits which includes salaries, bonuses, sales
commissions, incentive compensation and other payroll related expenses.
Compensation and benefits expense increased 25.4% to $55,367,000 for the year
ended April 30, 1995 from $44,137,000 for the year ended April 30, 1994 and
increased 15.9% for the year ended April 30, 1994 from $38,070,000 for the
year ended April 30, 1993. For all periods presented, compensation and
benefits expense increased as a result of adding personnel to manage the
increasing client and asset base and the expansion into new businesses
including the Quest for Value mutual fund business and in fiscal 1995 AMA
Investment Advisers, Opcap Trust and Saratoga. The number of employees
increased 26.4% to 417 at April 30, 1995 from 330 at April 30, 1994 and
increased 35.2% at April 30, 1994 from 244 at April 30, 1993. Incentive
compensation expense increased as a result of new business and additions to
staff including marketing and investment professionals.
Occupancy expense increased 22.9% for the year ended April 30, 1995
to $6,436,000 from $5,235,000 for the year ended April 30, 1994 and increased
15.6% for the year ended April 30, 1994 from $4,529,000 for the year ended
April 30, 1993. These increases are attributable to the acquisition of
additional space to expand a growing institutional and mutual fund business,
as well as the new businesses entered into during the current fiscal year.
The Operating Partnership subleases a portion of its space at the
Oppenheimer Tower, World Financial Center, from Oppenheimer & Co., Inc.
("Opco"), an affiliated broker-dealer, paying a pro rata share of Opco's
lease payments, based on the percentage of total space leased.
General and administrative expenses increased 60.7% for the year
ended April 30, 1995 to $10,652,000 from $6,630,000 for the year ended April
30, 1994 and increased 26.6% for the year ended April 30, 1994 from
$5,238,000 for the year ended April 30, 1993. These increases reflect
increased costs incurred in connection with the start up and development of
new businesses, and increased activities in our traditional businesses. In
addition, general and administrative expenses increased due to higher
interest expense as a result of higher average borrowings and increased
interest rates.
Promotional expenses increased 22.2% for the year ended April 30,
1995 to $10,611,000 from $8,681,000 for the year ended April 30, 1994 and
increased 26.4% for the year ended April 30, 1994 from $6,870,000 for the
year ended April 30, 1993. For all periods presented, promotional expenses
increased due to increased marketing activities and new product introductions
in both the Operating Partnership's investment management business, mutual
fund business and other new businesses.
- 14 -
<PAGE>
OPERATING INCOME
Operating income decreased 1.6% for the year ended April 30, 1995 to
$46,846,000 from $47,607,000 for the year ended April 30, 1994 and increased
18.9% for the year ended April 30, 1994 from $40,026,000 for the year ended
April 30, 1993. The current year decline in operating income is due to the
costs associated with the Operating Partnership's expansion into new
businesses. During fiscal 1995 the Operating Partnership acquired AMA
Investment Advisers, Opcap Trust, and formed Saratoga, a joint venture. In
addition, the Operating Partnership continued to significantly expand its
International Investment Management Division. These new businesses incurred
an operating loss of $4.8 million in fiscal 1995 which was offset in part by
a $4.0 million increase in operating income from existing businesses. The
Operating Partnership has now reached the end of its major expansion program
and expects cost increases to moderate. The prior year increase in operating
income reflected an increase in investment management fee revenue partially
offset by increased expenditures for the operation and expansion of the
Operating Partnership's institutional investment management and mutual fund
business.
INCOME TAXES
The Operating Partnership is not subject to Federal, state, or local
income taxes, which are the obligations of the individual partners. Based on
a new tax law which became effective January 1, 1995 the Operating
Partnership was required to pay New York City UBT of $1,201,000 in fiscal
1995. Both the Partnership and Opfin receive a credit for their pro rata
share of any New York City UBT paid by the Operating Partnership.
LIQUIDITY AND CAPITAL RESOURCES
The Operating Partnership has established a $20 million credit
facility with a commercial bank to meet operating and financing needs. These
funds have currently been used to support increased management fees
receivable, to expand its facilities to accommodate the growth of its
business and to finance acquisitions. The Operating Partnership has entered
into an agreement with a commercial bank to sell the right to receive 12b-1
fees and contingent deferred sales charges from the sale of Class B shares of
the Quest for Value Family of Funds as a means to raise funds for the payment
of commissions paid to brokers associated with the sale of Class B shares.
The Operating Partnership intends to distribute on a quarterly basis
substantially all its net income to the Partnership and to Opfin. The
Operating Partnership may distribute to the Partnership and to Opfin excess
cash taking into account the Operating Partnership's financial condition,
results of operations, cash requirements and general economic conditions.
SUBSEQUENT EVENT
On June 16, 1995, Oppenheimer Management Corporation ("OMC") and the
Operating Partnership announced that they were in discussions for OMC to
acquire the investment advisory contracts and associated business
relationships of twelve of Oppenheimer Capital's Quest for Value Funds. OMC
is not related to the Operating Partnership. The discussions cover funds
with total net assets of approximately $1.5 billion. Any transaction would
be subject to the signing of a definitive agreement and all necessary
approvals of the funds' shareholders.
The six equity funds under discussion would continue to be managed
by Quest for Value Advisors, a subpartnership of the Operating Partnership,
under a subadvisory agreement with OMC. This would allow the current
portfolio management teams to remain in place after the prospective
acquisition is completed. At July 14, 1995, total net assets in those funds
was $1.2 billion.
- 15 -
<PAGE>
It is contemplated that each of the six Quest for Value fixed income
funds would be merged into funds currently managed by OMC. Total net assets
of the six Quest for Value fixed income funds was $.3 billion at July 14,
1995.
In addition, as a result of the proposed transaction, operating
profits from mutual fund activities are expected to increase as expense
reductions from the curtailment of distribution efforts with respect to the
funds being sold is expected to exceed the reduction in management fees.
- 16 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX OF FINANCIAL STATEMENTS AND ACCOMPANYING NOTES OF OPPENHEIMER CAPITAL,
L.P. AND CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES OF
OPPENHEIMER CAPITAL FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993.
CONTENTS PAGES
-----
OPPENHEIMER CAPITAL, L.P.
Report of Independent Accountants F-1
Statements of Financial Condition F-2
Statements of Income F-3
Statements of Changes in Partners' Capital F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
OPPENHEIMER CAPITAL
Report of Independent Accountants F-10
Consolidated Statements of Financial Condition F-11
Consolidated Statements of Income F-12
Consolidated Statements of Changes in Partners' Capital F-13
Consolidated Statements of Cash Flows F-14
Notes to Consolidated Financial Statements F-15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 20, 1995
To The General Partner and Limited Partners of
Oppenheimer Capital, L.P.
In our opinion, the accompanying statements of financial condition and the
related statements of income, changes in partners' capital and cash flows
present fairly, in all material respects, the financial position of
Oppenheimer Capital, L.P. (the "Partnership") at April 30, 1995 and 1994, and
the results of its operations and its cash flows for each of the three years
in the period ended April 30, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these 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 provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
F-1
<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
-------------------------------------
1995 1994
-------------------------------------
<S> <C> <C>
ASSETS
Cash and short term investments (Note 4) $ 60 $ 75
Investment in Oppenheimer Capital (Note 2) 9,707 8,342
Distribution receivable 9,545 9,900
10% note due 2012 from Oppenheimer Equities, Inc. (Note 4) 32,193 32,193
Interest receivable 538 538
Other assets 109 -
Goodwill, net (Note 2) 44,481 47,068
---------- ----------
TOTAL ASSETS $ 96,633 $ 98,116
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Distribution payable to partners $ 10,321 $ 10,319
---------- ----------
TOTAL LIABILITIES 10,321 10,319
---------- ----------
General partner's capital 876 892
Limited partners' capital; 15,712,500 Units authorized;
15,136,837 and 15,043,169 Units outstanding, respectively 85,436 86,905
---------- ----------
TOTAL PARTNERS' CAPITAL 86,312 87,797
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 96,633 $ 98,116
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30,
---------------------------------------------------------------
1995 1994 1993
------------------- ----------------- ---------------------
<S> <S> <C> <C>
REVENUES:
Equity in earnings of Oppenheimer
Capital (Note 2) $ 31,054 $ 31,864 $ 26,793
Interest 3,228 3,227 3,229
----------- --------- ----------
TOTAL REVENUES 34,282 35,091 30,022
----------- --------- ----------
EXPENSES:
Amortization of goodwill (Note 2) 2,588 2,588 2,588
Other expenses (Note 2) 873 1,450 1,116
----------- --------- ----------
TOTAL EXPENSES 3,461 4,038 3,704
----------- --------- ----------
NET INCOME $ 30,821 $ 31,053 $ 26,318
=========== ========= ==========
NET INCOME PER UNIT (NOTE 3) $ 2.02 $ 2.04 $ 1.74
=========== ========= ==========
DISTRIBUTIONS DECLARED PER UNIT $ 2.175 $ 2.1375 $ 1.9375
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
CAPITAL CAPITAL CAPITAL
------------------- ------------------ --------------------
<S> <C> <C> <C>
BALANCES AT APRIL 30, 1992 $ 920 $ 89,748 $ 90,668
Net income 263 26,055 26,318
Distributions declared (294) (29,136) (29,430)
Amortization of restricted unit compensation expense 10 981 991
Capital contributions 1 134 135
----------- ----------- -----------
BALANCES AT APRIL 30, 1993 900 87,782 88,682
Net income 311 30,742 31,053
Distributions declared (325) (32,217) (32,542)
Amortization of restricted unit compensation expense 6 552 558
Capital contributions - 46 46
----------- ----------- -----------
BALANCES AT APRIL 30, 1994 892 86,905 87,797
Net income 308 30,513 30,821
Distributions declared (332) (32,923) (33,255)
Amortization of restricted unit compensation expense 8 851 859
Capital contributions - 90 90
----------- ----------- -----------
BALANCES AT APRIL 30, 1995 $ 876 $ 85,436 $ 86,312
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30,
---------------------------------------------------------------
1995 1994 1993
------------------- ------------------ --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 30,821 $ 31,053 $ 26,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Distributions received (less than) the equity
in earnings of Oppenheimer Capital (60) (1,854) (103)
Amortization of goodwill 2,588 2,588 2,588
Changes in assets:
(Increase) decrease in other assets (109) 116 (9)
--------------- -------------- ----------------
Net cash provided by operating activities 33,240 31,903 28,794
--------------- -------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions to Oppenheimer Capital (86) (68) (45)
--------------- -------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners:
General partner (332) (319) (287)
Limited partners (32,923) (31,587) (28,467)
Issuance of limited partnership units on exercise
of restricted options 86 68 45
--------------- -------------- ----------------
Net cash (used in) financing activities (33,169) (31,838) (28,709)
--------------- -------------- ----------------
Net increase (decrease) in cash and short term
investments (15) (3) 40
Cash and short term investments at beginning of
period 75 78 38
--------------- -------------- ----------------
Cash and short term investments at end of period $ 60 $ 75 $ 78
=============== ============== ================
Supplemental disclosure of cash flow information
(Note 6):
New York City unincorporated business taxes paid $ 985 $ 1,333 $ 1,125
=================== ================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Oppenheimer Capital, L.P. (the "Partnership"), is a publicly traded
limited partnership owned 1% by its general partner, Oppenheimer Financial
Corp. ("Opfin") and 99% by its public limited partners ("Unitholders"). The
Partnership's sole business is its holding of a 67.1% interest in Oppenheimer
Capital (the "Operating Partnership"), a registered investment adviser.
Opfin holds the remaining 32.9% interest in the Operating Partnership. The
Operating Partnership is part of an affiliated group of companies operating
in the financial services industry. The financial statements of the
Partnership should be read in conjunction with the consolidated financial
statements of the Operating Partnership.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) INVESTMENT IN OPPENHEIMER CAPITAL
The Partnership records its investment in the Operating Partnership
in accordance with the equity method of accounting. The Partnership records
as income its proportionate share of the net income of the Operating
Partnership and credits distributions from the Operating Partnership to its
investment in Oppenheimer Capital.
(b) GOODWILL
The excess of the initial contribution of capital to the Operating
Partnership over fair value of the net assets acquired is being amortized on
a straight-line basis over a period of 25 years. Accumulated amortization at
April 30, 1995 and 1994 was $20,213,000 and $17,626,000, respectively.
Impairment of goodwill is measured on the basis of anticipated undiscounted
cash flows. At April 30, 1995, 1994 and 1993, the Partnership determined
there was no impairment of goodwill.
(c) OTHER EXPENSES
Other expenses consist of New York City unincorporated business tax
at a rate of 4% of taxable income. The Partnership is not subject to Federal
or local income taxes which are obligations of the individual partners.
However, under current tax law the Partnership will be taxed as a corporation
beginning in 1998.
(d) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and short term
investments include highly-liquid investments with maturities of three
months or less.
F-6
<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - NET INCOME PER UNIT
(In Thousands, Except For Per Unit Amounts)
- - -------------------------------------------------------------------------------
For the year ended April 30,
------------------------------
1995 1994 1993
--------- -------- ---------
Net income $ 30,821 $ 31,053 $ 26,318
- - -------------------------------------------------------------------------------
Less 1% applicable to the General Partner 308 311 263
- - -------------------------------------------------------------------------------
Net income available to the Limited Partners $ 30,513 $ 30,742 $ 26,055
- - -------------------------------------------------------------------------------
Weighted average number of units outstanding 15,136 15,043 15,009
- - -------------------------------------------------------------------------------
Net income per unit $ 2.02 $ 2.04 $ 1.74
===============================================================================
NOTE 4 - TRANSACTIONS WITH AFFILIATED COMPANIES
(a) CASH AND SHORT TERM INVESTMENTS
On occasion the Partnership deposits excess funds with an affiliate
and receives interest at money market rates. In addition, excess funds are
also invested in a money market fund managed by an affiliate. Included in
cash and short term investments at April 30, 1995 and 1994 was $5,000 and
$5,000, respectively, on deposit with Oppenheimer & Co., Inc. ("Opco"), an
affiliated broker-dealer and $55,000 and $70,000, respectively, invested in
the Quest Cash Reserves Primary Portfolio, which is managed by Quest for
Value Advisors ("Advisors"), an affiliated investment adviser.
(b) 10% PAR VALUE NOTE DUE 2012 FROM OPPENHEIMER EQUITIES, INC.
In April 1991, the Partnership received a distribution from the
Operating Partnership of a $32,193,000, 10% par value note due 2012 from
Oppenheimer Equities, Inc., ("Equities"), a direct wholly-owned subsidiary of
Opfin.
THE SUMMARY FINANCIAL POSITION OF EQUITIES IS AS FOLLOWS:
(In Millions)
- - --------------------------------------------------------------------------
April 30, 1995
--------------
Total assets $3,624
- - --------------------------------------------------------------------------
Total liabilities, exclusive of subordinated liabilities 3,330
- - --------------------------------------------------------------------------
Liabilities subordinated to claims of general creditors 4
- - --------------------------------------------------------------------------
Total shareholder's equity 290
- - --------------------------------------------------------------------------
Total liabilities and shareholder's equity $3,624
==========================================================================
For the year ended April 30, 1995, Equities' net loss was $5 million on
total revenues of $631 million.
F-7
<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, Except For Per Unit Amounts)
==============================================================================
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1995 QUARTER QUARTER QUARTER QUARTER
- - ------------------------------------------------------------------------------
Total revenues $ 8,853 $ 9,017 $ 8,093 $ 8,319
- - ------------------------------------------------------------------------------
Net income $ 7,876 $ 7,969 $ 7,223 $ 7,753
- - ------------------------------------------------------------------------------
Net income per unit $ .52 $ .52 $ .47 $ .51
- - ------------------------------------------------------------------------------
Distributions declared per unit $ .50 $ .50 $ .50 $ .675
- - ------------------------------------------------------------------------------
Market price:
High $26.375 $24.625 $22.875 $24.000
Low $23.250 $21.750 $18.750 $20.750
==============================================================================
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1994 QUARTER QUARTER QUARTER QUARTER
- - ------------------------------------------------------------------------------
Total revenues $ 8,620 $ 8,954 $ 9,057 $ 8,460
- - ------------------------------------------------------------------------------
Net income $ 7,598 $ 7,907 $ 8,030 $ 7,518
- - ------------------------------------------------------------------------------
Net income per unit $ .50 $ .52 $ .53 $ .49
- - ------------------------------------------------------------------------------
Distributions declared per unit $ .4625 $ .50 $ .50 $ .675
- - ------------------------------------------------------------------------------
Market price:
High $27.375 $30.000 $29.500 $28.750
Low $23.750 $24.750 $26.000 $22.375
==============================================================================
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL INFORMATION OF NON-CASH ACTIVITIES FOR THE FISCAL YEAR ENDED
APRIL 30, 1995:
Oppenheimer Capital, L.P. issued 93,668 units of limited partnership interest
under the Restricted Unit Plan and Restricted Option Plan in exchange for an
additional .14% general partnership interest in Oppenheimer Capital.
SUPPLEMENTAL INFORMATION OF NON-CASH ACTIVITIES FOR THE FISCAL YEAR ENDED
APRIL 30, 1994:
Oppenheimer Capital, L.P. issued 5,166 units of limited partnership interest
under the Restricted Unit Plan and Restricted Option Plan in exchange for an
additional .01% general partnership interest in Oppenheimer Capital.
SUPPLEMENTAL INFORMATION OF NON-CASH ACTIVITIES FOR THE FISCAL YEAR ENDED
APRIL 30, 1993:
Oppenheimer Capital, L.P. issued 175,993 units of limited partnership
interest under the Restricted Unit Plan and Restricted Option Plan in
exchange for an additional .27% general partnership interest in Oppenheimer
Capital.
F-8
<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - SUBSEQUENT EVENT
On June 16, 1995, Oppenheimer Management Corporation ("OMC") and the
Operating Partnership announced that they were in discussions for OMC to
acquire the investment advisory contracts and associated business
relationships of twelve of the open end equity and fixed income Quest For
Value Funds ("Funds"). OMC is not related to the Operating Partnership. In
the transaction being contemplated, Advisors would continue to manage six of
the Funds as subadviser, while the other six Funds would be merged into funds
currently managed by OMC. Any transaction would be subject to the signing of
a definitive agreement and all necessary approvals of the Funds shareholders.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 20, 1995
To The General Partners of
Oppenheimer Capital
In our opinion, the accompanying statements of financial condition and the
related statements of income, changes in partners' capital and cash flows
present fairly, in all material respects, the financial position of
Oppenheimer Capital and its subsidiaries (the "Partnership") at April 30,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended April 30, 1995, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Partnership's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these 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 provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
F-10
<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
------------------------------------------------
1995 1994
------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short term investments (Notes 1 and 4) $ 9,214 $ 4,308
Investment management fees receivable 33,177 28,660
Furniture, equipment and leasehold improvements at cost,
less accumulated depreciation and amortization of $1,867
and $1,481 (Note 1) 3,733 2,741
Intangible assets, less accumulated amortization of $395
and $953 (Note 5) 3,012 1,766
Other assets (Note 6) 6,993 5,559
------------ ---------------
TOTAL ASSETS $ 56,129 $ 43,034
============ ===============
LIABILITIES, MINORITY INTEREST AND PARTNERS' CAPITAL
LIABILITIES
Accrued employee compensation and benefits $ 8,324 $ 6,687
Accrued expenses and other liabilities 6,878 4,734
Note payable (Note 10) 1,200 -
Loan payable to bank (Note 7) 9,182 2,736
Deferred investment management fees 1,716 1,623
Distribution payable to partners 14,282 14,777
------------ --------------
TOTAL LIABILITIES 41,582 30,557
------------ --------------
Minority interest 87 25
PARTNERS' CAPITAL 14,460 12,452
------------ --------------
TOTAL LIABILITIES, MINORITY INTEREST
AND PARTNERS' CAPITAL $ 56,129 $ 43,034
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30,
---------------------------------------------------------------
1995 1994 1993
------------------- ------------------ --------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Investment management fees (Note 1) $ 122,578 $ 111,396 $ 93,197
Net distribution assistance and
commission income (Note 4) 7,053 770 1,405
Interest and dividends 281 124 131
---------------- -------------- ----------------
TOTAL OPERATING REVENUES 129,912 112,290 94,733
---------------- -------------- ----------------
OPERATING EXPENSES:
Compensation and benefits (Note 3) 55,367 44,137 38,070
Occupancy 6,436 5,235 4,529
General and administrative 10,652 6,630 5,238
Promotional 10,611 8,681 6,870
--------------- -------------- ----------------
TOTAL OPERATING EXPENSES 83,066 64,683 54,707
--------------- -------------- ----------------
OPERATING INCOME 46,846 47,607 40,026
Income taxes (Note 8) (1,201) - -
--------------- -------------- ----------------
INCOME BEFORE MINORITY INTEREST 45,645 47,607 40,026
Minority interest - (47) (5)
--------------- -------------- ----------------
NET INCOME $ 45,645 $ 47,560 $ 40,021
=============== ============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT APRIL 30, 1992 $ 8,985
Net income 40,021
Amortization of restricted unit compensation expense 1,480
Distributions declared to partners:
Oppenheimer Financial Corp. (13,494)
Oppenheimer Capital, L.P. (27,330)
Contributions by Oppenheimer Capital, L.P. 167
---------
BALANCE AT APRIL 30, 1993 9,829
Net income 47,560
Amortization of restricted unit compensation expense 833
Distributions declared to partners:
Oppenheimer Financial Corp. (15,128)
Oppenheimer Capital, L.P. (30,710)
Contributions by Oppenheimer Capital, L.P. 68
---------
BALANCE AT APRIL 30, 1994 12,452
Net income 45,645
Amortization of restricted unit compensation expense 1,280
Distributions declared to partners:
Oppenheimer Financial Corp. (14,313)
Oppenheimer Capital, L.P. (30,690)
Contributions by Oppenheimer Capital, L.P. 86
---------
BALANCE AT APRIL 30, 1995 $ 14,460
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
APRIL 30,
-------------------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 45,645 $ 47,560 $ 40,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of restricted unit compensation expense 1,280 833 1,480
Depreciation and amortization 1,082 905 763
Minority interest, net of distributions 62 7 5
(Increase) in investment management fees receivable (4,517) (2,557) (4,245)
(Increase) decrease in other assets 1,300 (1,442) (505)
Increase (decrease) in accrued employee compensation
and benefits 1,637 (1,105) 2,311
Increase in accrued expenses and other liabilities 2,144 594 1,573
Increase in deferred investment management fees 93 342 275
---------- ---------- ---------
Net cash provided by operating activities 48,726 45,137 41,678
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets (1,634) (1,057) (656)
Intangible assets resulting from acquisitions (1,689) (613) (474)
Proceeds from sales of mutual funds shares and other investments 2,048 1,596 -
Purchases of mutual funds shares and other investments (4,384) (2,259) (22)
---------- ---------- ---------
Net cash (used in) investing activities (5,659) (2,333) (1,152)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from bank loan 6,446 2,736 -
Issuance of note payable 1,200 - -
Distributions to partners:
Oppenheimer Financial Corp. (14,898) (15,669) (13,229)
Oppenheimer Capital, L.P. (30,995) (30,009) (26,690)
Contributions by Oppenheimer Capital, L.P. 86 68 45
---------- ---------- ---------
Net cash (used in) financing activities (38,161) (42,874) (39,874)
---------- ---------- ---------
Net increase (decrease) in cash and short term investments 4,906 (70) 652
Cash and short term investments at beginning of period 4,308 4,378 3,726
---------- ---------- ---------
Cash and short term investments at end of period $ 9,214 $ 4,308 $ 4,378
========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 738 $ 164 $ 122
========== ========== =========
New York City unincorporated business taxes paid $ 1,049 $ - $ -
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-14
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND CONSOLIDATION
Oppenheimer Capital (the "Operating Partnership"), a general partnership
between Oppenheimer Financial Corp. ("Opfin") and Oppenheimer Capital, L.P.
(the "Partnership"), is a registered investment adviser and is part of an
affiliated group of companies operating in the financial services industry.
At May 1, 1992, the Partnership and Opfin held general partnership
interests of 66.72% and 33.28%, respectively.
During fiscal 1993, 1994 and 1995, the Partnership issued 175,993, 5,166
and 93,668 units of limited partnership interest ("units"), respectively,
under the Restricted Unit Plan and Restricted Option Plan which increased its
general partnership interest in the Operating Partnership to 66.99%, 67.00%
and 67.14%, respectively, and reduced Opfin's general partnership interest in
the Operating Partnership to 33.01%, 33.00% and 32.86%, respectively.
The consolidated financial statements include the accounts of the
Operating Partnership and its subsidiaries, Quest for Value Advisors
("Advisors"), Quest for Value Distributors ("Distributors"), Oppenheimer
Capital Futures Management, AMA Investment Advisers, L.P., American Medical
Investment Company, L.P. and Saratoga Capital Management (collectively, the
"Subpartnerships"), Oppenheimer Capital Limited and Oppenheimer Capital Trust
Company. All material intercompany balances and transactions have been
eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
(B) CASH AND SHORT TERM INVESTMENTS
Short term investments are recorded at cost which approximates market
value and include holdings in money market mutual funds and highly-liquid
investments with maturities of three months or less. Also included in cash
and short term investments are unit investment trust and certificate of
deposit positions which are recorded at market.
(C) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture and equipment are depreciated on a straight-line basis over
five to seven year periods. Amortization of leasehold improvements is on a
straight-line basis over the lesser of their economic useful life or the term
of the lease.
F-15
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) INVESTMENT MANAGEMENT FEES
Investment management fees are based on written contracts and are
generally computed on the net assets of the managed accounts and recognized
in the period earned.
(E) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and short term investments
include highly- liquid investments with maturities of three months or less.
(F) INTANGIBLE ASSETS
Impairment of an intangible asset is measured on the basis of
anticipated undiscounted cash flows. At April 30, 1995, 1994 and 1993, the
Operating Partnership determined that there was no impairment of the
intangible assets.
NOTE 2 - LONG TERM LEASE COMMITMENTS
The Operating Partnership occupies office premises at various locations,
including the Oppenheimer Tower under an agreement to sublease with
Oppenheimer & Co., Inc. ("Opco"), an affiliated broker-dealer. The Operating
Partnership's lease commitments for office space under operating leases
having noncancelable lease terms in excess of one year provide for the
following minimum annual rentals:
<TABLE>
<CAPTION>
Years ending April 30,
- - -----------------------
<S> <C>
1996 $ 3,800,000
1997 3,916,000
1998 3,909,000
1999 3,909,000
2000 3,909,000
Thereafter 17,128,000
------------
Total minimum lease payments $36,571,000
============
</TABLE>
The agreements expire at various dates through 2006 and contain
provisions for additional charges (e.g., ground rent, real estate taxes and
operating expenses). Office rent expense for the years ended April 30, 1995,
1994 and 1993 was $5,100,000, $4,144,000 and $3,688,000, respectively.
F-16
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - COMPENSATION PLANS
The Operating Partnership has established a Restricted Unit Plan and a
Restricted Option Plan for the benefit of certain key executive employees.
Pursuant to these plans, an eligible executive will be granted the right to
receive a number of units of the Partnership at no cost to the executive
("Rights"), in the case of the Restricted Unit Plan and/or the right to
purchase a number of units at the fair market value of such units on the date
of grant ("Options"), in the case of the Restricted Option Plan. The right
to receive or purchase units will vest 33 1/3% per year at the end of each of
the third, fourth and fifth years from the date of grant. The Partnership
will transfer to the Operating Partnership the proceeds of such purchases in
exchange for an increase in its general partnership interest in the Operating
Partnership. Opfin and the limited partners of the Partnership will incur
dilution, in accordance with their respective percentage interests in the
Operating Partnership, upon the vesting of these Rights and the exercise of
any Options to purchase units. A total of 1,237,500 restricted units and/or
restricted options have been authorized under these plans. The table below
shows the Rights granted and the Options granted with exercise prices of
$13.50 to $28.125 at April 30, 1995. As a result of the grant of Rights, the
Operating Partnership recorded deferred restricted unit compensation expense
in partners' capital of $7,060,500 for the Rights granted July 9, 1987,
$5,682,188 for the Rights granted May 1, 1991, $515,625 for the Rights
granted May 1, 1992, $686,250 for the Rights granted May 1, 1993, $26,875 for
the Rights granted July 12, 1993, $140,625 for the Rights granted October 18,
1993 and $385,088 for the Rights granted May 1, 1994. Rights are amortized
over a five year period. Amortization of $1,280,000, $833,000 and $1,480,000
has been recorded for each of the years ended April 30, 1995, 1994 and 1993,
respectively. This amortization results in a charge to compensation and
benefits and a corresponding amount is credited to partners' capital.
F-17
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - COMPENSATION PLANS (CONTINUED)
<TABLE>
<CAPTION>
EXERCISE
RIGHTS OPTIONS PRICE
OUTSTANDING OUTSTANDING PER OPTION
----------- ----------- ---------------
<S> <C> <C> <C>
Balances at April 30, 1992 485,827 31,333 $10.875-$18.125
Rights granted 25,000 -- --
Rights canceled (1,500) -- --
Units issued with respect to Rights (172,327) -- --
Options granted -- 24,500 $20.625
Options exercised -- (3,666) $10.875-$14.875
Options canceled -- -- --
----------- ----------- ---------------
Balances at April 30, 1993 337,000 52,167 $11.375-$20.625
Rights granted 33,450 -- --
Rights canceled (47,500) -- --
Units issued with respect to Rights -- -- --
Options granted -- 97,000 $25.00-$28.125
Options exercised -- (5,166) $10.875-$14.875
Options canceled -- (2,500) $20.625-$25.00
----------- ----------- ---------------
Balances at April 30, 1994 322,950 141,501 $11.375-$25.00
Rights granted 16,300 -- --
Rights canceled (3,333) -- --
Units issued with respect to Rights (88,167) -- --
Options granted -- 140,500 $23.625-$24.875
Options exercised -- (5,501) $11.375-$23.875
Options canceled -- (9,667) $11.375-$25.00
----------- ----------- ---------------
Balances at April 30, 1995 247,750 266,833 $13.50-$28.125
=========== =========== ===============
</TABLE>
NOTE 4 - TRANSACTIONS WITH AFFILIATED COMPANIES
(A) CASH AND SHORT TERM INVESTMENTS
On occasion the Operating Partnership deposits excess funds with an
affiliate and receives interest at money market rates. In addition, excess
funds are also invested in a money market fund managed by Advisors. Included
in cash and short term investments at April 30, 1995 and 1994 was $196,000
and $18,000, respectively, on deposit with Opco and $3,595,000 and
$2,835,000, respectively, invested in the Quest Cash Reserves Primary
Portfolio, for which Advisors acts as investment adviser.
F-18
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
(B) DISTRIBUTION ASSISTANCE FEES AND EXPENSES
The Operating Partnership, through Advisors and Distributors, receives
distribution assistance fees from various mutual funds and has entered into
agreements with various broker-dealers including Opco to obtain sales-related
services in rendering distribution assistance. Payments to Opco under these
agreements are recorded as distribution assistance expenses and for financial
statement purposes are netted against distribution assistance fees. Such
payments totaled $9,248,000, $8,289,000 and $7,260,000 for the years ended
April 30, 1995, 1994 and 1993, respectively.
(C) OTHER SERVICES
Opco provides various services to the Operating Partnership and its
subsidiaries at its cost. Charges pursuant to these agreements are not
material.
(D) QUEST FOR VALUE MUTUAL FUNDS - INVESTMENT MANAGEMENT FEES
The Operating Partnership and its subsidiaries provide investment
management services to the Quest for Value Mutual Funds. For the years ended
April 30, 1995, 1994 and 1993, amounts earned for such services from the
Quest for Value Mutual Funds totaled $22,439,000, $21,709,000 and
$15,344,000, respectively.
NOTE 5 - INTANGIBLE ASSETS
On June 19, 1991, the Board of Directors of the Quest For Value Family
of Funds approved agreements whereby funds managed by the Subpartnerships
having similar investment objectives and policies, would acquire all of the
assets, subject to liabilities, of each fund of the American Medical
Association Family of Funds. The acquisition of these assets was completed
at various dates in September, November and December 1991.
As part of this transaction, the Subpartnerships entered into a
non-compete agreement with the American Medical Association ("AMA"), whereby
AMA agreed not to compete with the Subpartnerships for the three year period
ending on December 15, 1994. In consideration of such agreement, the
Subpartnerships paid AMA $1,000,000 on December 16, 1991.
F-19
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INTANGIBLE ASSETS (CONTINUED)
In addition, the Subpartnerships entered into a distribution and
shareholder servicing assistance contract with AMA Investment Advisers, Inc.
("AMA Advisers"), whereby AMA Advisers agreed to provide the Subpartnerships
with assistance in the provision of distribution services and shareholder
servicing to the Quest for Value Family of Funds. Under this contract, the
Subpartnerships paid AMA Advisers an annual retainer for three years equal to
50% of the annual management fee earned with respect to assets attributable
to AMA Advisers. At April 30, 1995 and April 30, 1994, cumulative payments to
AMA Advisers under this contract amounted to $1,707,000 and $1,719,000,
respectively. These amounts, less accumulated amortization of $282,000 and
$162,000 at April 30, 1995 and April 30, 1994, respectively, are included in
intangible assets.
The fee for the non-compete agreement was recorded as an intangible
asset and was amortized on a straight-line basis over a three year period.
Each of the three payments for the distribution and shareholder servicing
assistance contract is being amortized on a straight-line basis over a period
of fourteen years.
NOTE 6 - OTHER ASSETS
Other assets is comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Investments in affiliated mutual funds $2,887,000 $1,491,000
Investment in Orange County securities 840,000 --
Prepaid and other assets 3,266,000 4,068,000
---------- ----------
Total other assets $6,993,000 $5,559,000
</TABLE>
On December 7, 1994, in response to the bankruptcy filing by Orange
County, California, the Operating Partnership voluntarily purchased
$2,000,000 principal amount at par of Orange County Tax and Revenue
Anticipation Notes from a mutual fund for which Advisors acts as the sole
investment adviser. This investment is being recorded at the market value.
On February 2, 1995 and February 8, 1995, the Operating Partnership sold a
total of $1,000,000 principal amount of the Orange County Tax and Revenue
Anticipation Notes and realized a loss of approximately $100,000.
F-20
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - LOAN PAYABLE TO BANK
The Operating Partnership meets its short term financing needs by
obtaining bank loans that are collateralized by investment management fees
receivable and other assets. Short term bank loans are generally made at one
and one quarter percent below the prime rate. Interest expensed relating to
this loan during fiscal 1995, 1994 and 1993 amounted to $648,000, $146,000,
and $118,000, respectively.
NOTE 8 - INCOME TAXES
The Operating Partnership is not subject to Federal or local income
taxes. The Operating Partnership was subject to New York City unincorporated
business tax of $1,201,000 for the fiscal year ended April 30, 1995.
NOTE 9 - SHARE CLASSES OF QUEST FOR VALUE OPEN END FUNDS
The Operating Partnership offers three classes of shares for Quest for
Value open end funds. Class A share purchases of less than $1 million
are subject to a front end sales charge which varies based on the purchase
amount. Class B shares are sold with no upfront commission to the
purchaser but with a contingent deferred sales charge ("CDSC") for
redemptions within six years after sale. Class C shares are sold with no
upfront commission to the purchaser and have a CDSC for redemptions within
one year.
The Operating Partnership currently pays broker-dealers a commission on
the sale of Class C shares from its own resources. The Operating Partnership
has entered into an agreement with a commercial bank to sell the right to
receive 12b-1 fees and CDSC's from the sale of Class B shares of the Quest
for Value Family of Funds as a means to raise funds for the payment of
commissions paid to brokers associated with the sale of Class B shares.
NOTE 10 - ACQUISITIONS
On May 1, 1994, AMA and the Operating Partnership formed AMA Investment
Advisers, L.P. to acquire the assets of AMA Advisers and American Medical
Investment Company, Inc. The Operating Partnership and Opfin acquired a
79.1% and 1% partnership interest, respectively, for $500,000 and a
$1,200,000 promissory note. The promissory note is payable in three
installments of $400,000 on May 1, 1995, May 1, 1996 and May 1, 1997 and is
based on the prime rate. AMA Investment Advisers, L.P. and its subsidiary
offer investment services and products tailored especially for members of AMA
and other health care professionals and medical organizations.
On May 1, 1994, the Operating Partnership acquired Liberty Street Trust
Company from Oppenheimer Holdings, Inc., an affiliate, for its net book value
of approximately $1,629,000 and renamed it Oppenheimer Capital Trust Company.
This company offers collectively managed portfolios of specialized asset
classes.
F-21
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - ACQUISITIONS (CONTINUED)
On May 10, 1994, the Operating Partnership formed Saratoga Capital
Management, a joint venture to provide asset allocation services to
broker-dealers utilizing mutual funds managed by independent investment
advisers and Advisors.
NOTE 11 - SUBSEQUENT EVENT
On June 16, 1995, Oppenheimer Management Corporation ("OMC") and the
Operating Partnership announced that they were in discussions for OMC to
acquire the investment advisory contracts and associated business
relationships of twelve of the open end equity and fixed income Quest For
Value Funds ("Funds"). OMC is not related to the Operating Partnership. In
the transaction being contemplated, Advisors would continue to manage six of
the Funds as subadviser, while the other six Funds would be merged into funds
currently managed by OMC. Any transaction would be subject to the signing of
a definitive agreement and all necessary approvals of the Funds shareholders.
F-22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is managed under the direction of the board of directors
of the General Partner. Unitholders, as limited partners, have no power to
direct or participate in the control of the business of the Partnership.
The following table sets forth certain information with respect to the
directors and executive officers of the General Partner and of the Operating
Partnership. The business address of each of the individuals listed below is
Oppenheimer Tower, World Financial Center, New York, New York 10281.
<TABLE>
<CAPTION>
AGE AS OF
NAME APRIL 30, 1995 POSITIONS HELD
- - ------------------ --------------- --------------------------------
<S> <C> <C>
Stephen Robert 54 Chairman of the Board and Chief
Executive Officer of Opfin
Nathan Gantcher 54 President, Chief Operating Officer
and Director of Opfin
Joseph M. La Motta 62 Executive Vice President and
Director of Opfin; President and
Chief Executive Officer of the
Operating Partnership
George A. Long 54 Managing Director and Chief
Investment Officer of the
Operating Partnership
Roger W. Einiger 47 Executive Vice President, Chief
Administrative Officer and
Director of Opfin
Sheldon M. Siegel 52 Managing Director and Chief
Financial Officer of the
Operating Partnership
Frederick M. Bohen 58 Director of Opfin
Michael C. Stoddart 63 Director of Opfin
</TABLE>
Mr. Robert has been a director of Opfin since January 1986; Chairman of
the Board and Chief Executive Officer of Opfin since February 1986; Chairman
and Chief Executive Officer of OGI from February 1986 to May 1995; Co-Chief
Executive Officer and President of OGI since May 1995; a director of Opco
since January 1979; Chairman of the Board of Opco since January 1983; Chief
Executive Officer of Opco from January 1983 to April 1995; Co-Chief Executive
Officer of Opco since May 1995; a director of NacRe Corporation since August
1985; and an executive officer or a director of current and/or former
affiliates of Opfin.
Mr. Gantcher has been a director of Opfin since January 1986; President
and Chief Operating Officer of Opfin since February 1986; President of OGI
from February 1986 to May 1995; Co-Chief Executive Officer and Chairman of
OGI since May 1995; a director of Opco since January 1979; President of Opco
since January 1983; Co-Chief Executive Officer of Opco since May 1995; a
director of Donkenny, Inc. from June 1993 to April 1995; and an executive
officer or a director of current and/or former affiliates of Opfin.
- 17 -
<PAGE>
Mr. La Motta has been a director of Opfin since January 1986; Executive
Vice President of Opfin since February 1986; Executive Vice President and a
director of OGI since February 1986; Executive Vice President of Opco from
July 1985 to September 1993; President and Chief Executive Officer of the
Operating Partnership and its predecessor since January 1984; and an
executive officer or a director of current and/or former affiliates of Opfin.
Mr. Long has been a Managing Director of the Operating Partnership and
its predecessor since September 1982; and Chief Investment Officer of the
Operating Partnership and its predecessor since January 1987.
Mr. Einiger has been a director of Opfin since January 1986; Executive
Vice President of Opfin since February 1986; Chief Administrative Officer of
Opfin since March 1986; Executive Vice President, Chief Administrative
Officer, Chairman of the Management Committee of OGI from March 1988 to April
1995 and a director of OGI since February 1986; Vice Chairman of Opco since
March 1992; Executive Vice President of Opco from December 1982 to March
1992; a director of Opco since July 1985; and an executive officer or a
director of current and/or former affiliates of Opfin.
Mr. Siegel has been a Managing Director of the Operating Partnership
since July 1987; and Chief Financial Officer of the Operating Partnership and
its predecessor since March 1987.
Mr. Bohen has been a director of Opfin since July 1993; Executive Vice
President and Chief Operating Officer, The Rockefeller University since
September 1990; Senior Vice President, Brown University from September 1983
to August 1990; a director of Student Loan Marketing Association (Sallie Mae)
since January 1984; a director of the Apache Corporation since November 1981;
a Trustee, Endowment Realty Advisors, Inc., a Real Estate Investment Trust
since August 1988; and a director of The Mexico Equity and Income Fund Inc.,
an investment company managed by an affiliate of Opco, since April 1990.
Mr. Stoddart has been a director of Opfin since July 1988; Chairman of
Electra Investment Trust P.L.C., an English corporation, since July 1986; a
director of Mezzanine Capital Corporation Ltd. (an investment company) since
May 1983; a director of Opco since July 1975; and a director of affiliates of
the Operating Partnership.
Mr. Bohen and Mr. Stoddart are unaffiliated with the management of Opfin
and serve on the Audit Committee which reports to the Board of Directors of
Opfin with respect to the selection and terms of engagement of the
Partnership's, the Operating Partnership's, the Subpartnership's and Opfin's
independent accountants, and reviews various matters relating to accounting
and audit policies and procedures.
All directors of Opfin, with the exceptions of Messrs. Bohen and
Stoddart, are general partners of Oppenheimer & Co., L.P., the parent of OGI.
Messrs. Bohen and Stoddart receive annual director's fees of $18,000, none
of which are charged to the Partnership or the Operating Partnership. All
other directors, who are executive officers of Opfin, do not receive any
additional compensation for their service as directors.
- 18 -
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any employees.
The following summary compensation table sets forth compensation awarded
to, earned by or paid to each of the three executive officers of the
Operating Partnership for the three years ended April 30, 1995 for services
rendered in all capacities to the Operating Partnership and its
Subpartnerships. The officers of the Operating Partnership perform
management functions on behalf of the Partnership; however, the Partnership
is not charged directly for any compensation paid by the Operating
Partnership. However, the Partnership is charged to the extent of its pro
rata share of the Operating Partnership's profits for any compensation paid
by the Operating Partnership.
<TABLE>
<CAPTION>
ALL OTHER
NAME AND YEAR ENDED ANNUAL COMPENSATION COMPENSATION
PRINCIPAL POSITION APRIL 30, SALARY ($) BONUS ($) ($) (1)
- - ----------------------- ---------- ------------------------- -------------
<S> <C> <C> <C> <C>
Joseph M. La Motta 1995 500,000 2,200,000 11,000
President and 1994 500,000 2,350,000 6,000
Chief Executive 1993 500,000 2,110,000 5,000
Officer of the
Operating Partnership
George A. Long 1995 350,000 2,000,000 7,000
Managing Director and 1994 350,000 2,050,000 3,000
Chief Investment 1993 259,000 1,700,000 3,000
Officer of the
Operating Partnership
Sheldon M. Siegel 1995 150,000 650,000 6,000
Managing Director and 1994 150,000 675,000 2,000
Chief Financial 1993 150,000 585,500 2,000
Officer of the
Operating Partnership
<FN>
(1) Represents amounts paid by the Operating Partnership as insurance
premiums on behalf of each executive officer.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Joseph M. La
Motta, the President and Chief Executive Officer of the Operating
Partnership, serves on the board of the Managing General Partner (along with
Messrs. Robert, Gantcher and Einiger) and participated in deliberations of
such board concerning executive compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Opfin is the sole general partner of the Partnership and the managing
general partner of the Operating Partnership. Opfin is a wholly-owned
subsidiary of OGI, a Delaware corporation which is a holding, service and
financing company, and is controlled by a partnership, Oppenheimer & Co.,
L.P., the general and limited partnership interests in which are owned by
employees of the Operating Partnership and its affiliates and include certain
executive officers of the Operating Partnership. Oppenheimer & Co., L.P. is
controlled by Messrs. Robert and Gantcher, its two managing general partners,
who may be deemed to beneficially own all of the shares of common stock of
OGI owned by Oppenheimer & Co., L.P. Prior to the March 1986 acquisition of
the stock of Opfin by OGI, Opfin was an indirect wholly-owned subsidiary of
Mercantile.
- 19 -
<PAGE>
DISCLOSURE OF BENEFICIAL INTEREST
The following table shows at July 14, 1995, the beneficial ownership of
the units held by each director of Opfin, each executive officer of the
Operating Partnership and all directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- - ------------------------ -------------------- ----------
<S> <C> <C>
Stephen Robert (1) -0- -0-
Nathan Gantcher (1) -0- -0-
Joseph M. La Motta 8,300 .05%
George A. Long 720 *
Roger W. Einiger -0- -0-
Sheldon M. Siegel 26,500 .18%
Frederick M. Bohen -0- -0-
Michael C. Stoddart -0- -0-
-------------------- ----------
All directors and executive
officers as a group 35,520 .23%
==================== ==========
<FN>
* Less than .01%
</TABLE>
(1) At July 14, 1995, Opfin held a 1% general partnership interest in
the Partnership and a 32.71% managing general partnership interest in the
Operating Partnership. Opfin, in turn, is indirectly controlled by
Oppenheimer & Co., L.P., a limited partnership, of which Messrs. Robert and
Gantcher serve as managing general partners.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTERCOMPANY RELATIONSHIP - CONFLICTS OF INTEREST
Opfin owns certain other financial services businesses, including Opco.
Opfin and its subsidiaries provide numerous services to the Operating
Partnership. Opco has over 800 individuals who are engaged primarily in
customer sales activities at its New York headquarters and in regional
offices and supports the marketing of Quest for Value mutual funds. In
addition, through the brokerage and securities business, Opco's account
executives introduce corporate, institutional and individual clients to the
Operating Partnership. Substantial commission revenues accrue to Opco from
accounts introduced to the Operating Partnership, but such commissions are
paid by the accounts themselves and are not an expense of the Operating
Partnership. However, Opfin and its affiliates may also be subject to
various conflicts of interest in managing and dealing with the Partnership
and the Operating Partnership, including the following:
ALLOCATION OF COSTS AND BUSINESS OPPORTUNITIES
The Managing General Partner incurs certain costs and expenses in
connection with the ownership of its financial services businesses, including
certain costs incurred on behalf of, and reimbursable by, the Operating
Partnership. In addition, income producing opportunities may arise which
could be allocated to the Operating Partnership or one or more of the
Managing General Partner's other businesses. For example, Opco is a
registered investment adviser and conflicts may arise with respect to
opportunities in the investment management business.
Although both the Operating Partnership and Opco provide investment
management services, actual conflicts between them seldom arise. The
Managing General Partner intends to make determinations on behalf of the
Operating Partnership as to appropriate business opportunities, consistent
with its past practices. Nevertheless, if conflicts arise between the
Operating Partnership and Opfin, a three-person Conflicts Committee,
consisting of Joseph M. La Motta, President and Chief Executive Officer of
the Operating Partnership, Stephen Robert, Chairman of the Board and Chief
Executive Officer of Opfin, and an unaffiliated Board member of Opfin, has
the authority to resolve such conflicts.
- 20 -
<PAGE>
Administrative, overhead or facilities (e.g., occupancy costs and
telephone) are provided to the Operating Partnership by Opfin and its
affiliates. The Operating Partnership is charged approximate cost, which
may, in some cases, be determined on the basis of a reasonable allocation.
To the extent Opfin or its affiliates perform services which are in the
ordinary course of its business (e.g., brokerage, trading, investment banking
or underwriting), the Partnership or the Operating Partnership will be
charged an amount which is no greater than that which would be charged by a
comparable unaffiliated third party. Other than occupancy costs and other
direct expenses paid by Opfin on account of the Operating Partnership
incurred in the fiscal year ended April 30, 1995, aggregate fees and expenses
charged by Opfin to the Operating Partnership were not material.
ALLOCATION OF MANAGEMENT TIME
Other than Mr. La Motta, the President and Chief Executive Officer of
the Operating Partnership who devotes substantially all of his time to the
Operating Partnership, the remaining officers and directors of Opfin are also
officers and directors of other businesses affiliated with Opfin and devote
substantially all of their time to the affairs of Opfin and other affiliated
businesses. However, the non-executive employees of the Operating Partnership
devote their full time to the business of the Operating Partnership.
TRANSACTIONS WITH AFFILIATED COMPANIES
Opco receives brokerage commissions on trades executed on behalf of the
Operating Partnership's management clients and fees on mutual fund
distribution services and expects to receive fees from the Operating
Partnership for investment banking and underwriting services. In fiscal
1995, Opco was the Operating Partnership's largest distributor of load mutual
funds. In fiscal 1995, Opco received sales concessions from the Operating
Partnership of $2.9 million on Quest For Value mutual fund sales. In fiscal
1995, Opco also distributed certain of the Operating Partnership's cash
management products. Opco received distribution payments totaling $1.1
million in fiscal 1995 for the Quest For Value mutual funds and received
distribution payments totaling $8.2 million in fiscal 1995 for the Quest Cash
Management products.
- 21 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Please see the index in item 8 for a list of the financial
statements filed as part of this report.
(2) Please see the index in item 8 for a list of the financial
statements filed as part of this report.
(3) The following exhibits are filed as part of this report:
21 List of subsidiaries
23 Consent of Independent Public Accountant
27 Financial data schedule
99 Oppenheimer Equities, Inc. and Subsidiaries Financial
Statements for the Years Ended April 30, 1995 and 1994.
(b) The Partnership was not required to and did not file any Reports on
Form 8-K during the three months ended April 30, 1995.
(c) The following exhibits required to be filed by Item 601 of
Regulation S-K are filed herewith and incorporated by reference
herein:
(3.1) Amended and Restated Agreement of Limited Partnership of
Oppenheimer Capital, L.P. (Incorporated by reference from
Registration Statement on Form S-3 Registration No. 33-39354)
(3.2) Amended and Restated Partnership Agreement of Oppenheimer Capital
(Incorporated by reference from Registration Statement
on Form S-3 Registration No. 33-39354)
(10.1) Promissory Note Issued by Oppenheimer Equities, Inc. (Incorporated
by reference from Registration Statement on Form S-3
Registration No. 33-39354)
(10.2) Form of lease with respect to premises at Oppenheimer Tower.
(Incorporated by reference from Registration Statement on
Form S-3 Registration No. 33-39354)
(10.3) Lease with respect to premises at World Financial Center, Tower B,
New York. (Incorporated by reference in the Annual
Report on Form 10-K of the Partnership for its fiscal year ended
April 30, 1993)
(10.4)* Amended and Restated Oppenheimer Past Service Benefit Plan.
(Incorporated by reference from Registration Statement on
Form S-3 Registration No. 33-39354)
(10.5)* First Amendment to the Oppenheimer Past Service Benefit Plan.
(Incorporated by reference from Registration Statement on
Form S-3 Registration No. 33-39354)
(10.6)* Oppenheimer Capital Deferred Compensation Plan. (Incorporated by
reference from Registration Statement on Form S-3
Registration No. 33-39354)
(10.7)* Restricted Unit Plan. (Incorporated by reference from Registration
Statement on Form S-8 filed on July 2, 1990
Registration No. 33-35584)
- 22 -
<PAGE>
(10.8)* Restricted Option Plan. (Incorporated by reference from
Registration Statement on Form S-8 filed on July 2, 1990
Registration No. 33-35584)
(10.9) Lease with respect to premises at 33 Maiden Lane, New York.
(d) No separate financial statements are required.
* Indicates a management contract or compensatory plan or arrangement.
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OPPENHEIMER CAPITAL, L.P.
(REGISTRANT)
BY: /S/ STEPHEN ROBERT
--------------------------------------------
STEPHEN ROBERT
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER OF OPFIN
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - -------------------------------- --------------------------------- -------------------
<S> <C> <C>
/s/ Stephen Robert
- - --------------------------------
Stephen Robert Chairman of the Board, Chief
Executive Officer of Opfin July 21, 1995
- - --------------------------------
Nathan Gantcher President, Chief Operating
Officer and Director of Opfin July 21, 1995
/s/ Joseph M. La Motta
- - --------------------------------
Joseph M. La Motta Executive Vice President and
Director of Opfin; President
and Chief Executive Officer
of the Operating Partnership July 21, 1995
/s/ Roger W. Einiger
- - --------------------------------
Roger W. Einiger Executive Vice President, Chief
Administrative Officer and
Director of Opfin July 21, 1995
/s/ Sheldon M. Siegel
- - --------------------------------
Sheldon M. Siegel Managing Director and Chief
Financial Officer of the
Operating Partnership July 21, 1995
/s/ Frederick M. Bohen
- - --------------------------------
Frederick M. Bohen Director of Opfin July 21, 1995
/s/ Michael C. Stoddart
- - --------------------------------
Michael C. Stoddart Director of Opfin July 21, 1995
</TABLE>
- 24 -
<PAGE>
EXHIBIT 21
OPPENHEIMER CAPITAL
The following list sets forth, as of July 21, 1995, the name of
Oppenheimer Capital and each of its Subpartnerships and/or Subsidiaries and
the states or other jurisdictions under which they are organized.
<TABLE>
<CAPTION>
State or Jurisdiction
Entity under which organized
- - --------------------------------------- ---------------------
<S> <C>
Oppenheimer Capital Delaware
Quest For Value Advisors Delaware
Quest For Value Distributors Delaware
Oppenheimer Capital Futures Management Delaware
Oppenheimer Capital Limited United Kingdom
AMA Investment Advisers, L.P. Delaware
American Medical Investment Company, L.P. Delaware
Oppenheimer Capital Trust Company New York
Saratoga Capital Management Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-35584) of Oppenheimer Capital, L.P. of our
reports dated June 20, 1995 appearing on pages F-1 and F-8 of the Oppenheimer
Capital, L.P. Annual Report on Form 10-K for the year ended April 30, 1995.
PRICE WATERHOUSE LLP
New York, New York
June 20, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE STATEMENTS OF FINANCIAL CONDITION AND STATEMENTS OF INCOME FOUND ON
PAGES F-2 AND F-3 OF THE PARTNERSHIP'S FINANCIAL STATEMENTS LOCATED IN
ITEM 8, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<CASH> 60
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,252<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,633<F2>
<CURRENT-LIABILITIES> 10,321
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 86,312<F3>
<TOTAL-LIABILITY-AND-EQUITY> 96,633
<SALES> 0
<TOTAL-REVENUES> 34,282
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,821
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,821
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
<FN>
<F1>Current assets is comprised of Cash ($60), Distribution
Receivable ($9,545), Interest Receivable ($538), and Other Assets ($109).
<F2>Total assets include Current Assets plus Investment in Oppenheimer
Capital ($9,707), a Non-trade Note Receivable ($32,193) and
Goodwill ($44,481).
<F3>Other Shareholders equity is comprised of General Partner's Capital ($876)
and Limited Partners' Capital ($85,436).
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
OPPENHEIMER EQUITIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
APRIL 30, 1995 AND 1994
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS E-2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION E-3
CONSOLIDATED STATEMENTS OF OPERATIONS E-5
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDER'S EQUITY E-6
CONSOLIDATED STATEMENTS OF CASH FLOWS E-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS E-9
E-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 23, 1995
To the Board of Directors
and Shareholder of
Oppenheimer Equities, Inc. and subsidiaries
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of operations, changes in shareholder's
equity and cash flows present fairly, in all material respects, the financial
position of Oppenheimer Equities, Inc. and subsidiaries at April 30, 1995 and
1994, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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 provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
E-2
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
April 30,
-------------------------------
1995 1994
-------------------------------
<S> <C> <C>
Cash $ 12,417 $ 11,579
Cash and securities segregated pursuant to Federal Regulations 775 675
Securities borrowed 1,458,433 1,059,993
Receivable from brokers and dealers 63,386 96,752
Receivable from customers 637,363 669,248
Securities owned - at market value 820,550 268,512
Securities purchased under agreements to resell 447,286 737,203
Exchange memberships - at cost
(market value $6,000 and $9,386, respectively) 1,434 3,379
Furniture, fixtures and leasehold improvements -
at cost less accumulated depreciation and
amortization of $31,589 and $37,428, respectively 18,218 15,548
Goodwill 3,276 3,473
Note receivable from affiliate 69,700 69,700
Other assets 90,983 88,162
-------------------------------
TOTAL ASSETS $ 3,623,821 $ 3,024,224
-------------------------------
-------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
E-3
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
April 30,
--------------------------
1995 1994
--------------------------
<S> <C> <C>
Short-term borrowings $ 193,000 $ 167,260
Drafts payable 25,418 31,928
Securities sold under agreements to repurchase 471,898 740,973
Securities loaned 1,383,002 941,800
Payable to brokers and dealers 314,126 52,439
Payable to customers 237,501 328,286
Securities sold but not yet purchased -
at market value 455,069 202,744
Accrued employee compensation and benefits 64,881 98,019
Notes payable 90,000 -
Note payable to affiliate 32,193 32,193
Other liabilities and accrued expenses 62,948 79,904
--------------------------
TOTAL LIABILITIES $ 3,330,036 $ 2,675,546
--------------------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 11)
LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL
CREDITORS 3,938 51,638
--------------------------
SHAREHOLDER'S EQUITY
Series A Preferred stock, par value $.01 per
share; 6,581 shares authorized; 6,581 shares
issued and outstanding - -
Common stock, par value $1 per share;
1,000 shares authorized; 1,000
shares issued and outstanding 1 1
Additional paid-in capital 136,427 131,417
Retained earnings 153,419 165,622
--------------------------
TOTAL SHAREHOLDER'S EQUITY 289,847 297,040
--------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,623,821 $ 3,024,224
--------------------------
--------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
E-4
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Year Ended
April 30,
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
REVENUES
Commissions $ 192,596 $ 213,347
Trading and investments 135,218 178,495
Investment banking 42,630 144,903
Investment management fees 51,638 38,786
Interest and dividends 190,387 153,017
Other 18,832 16,871
-----------------------------
TOTAL REVENUES 631,301 745,419
-----------------------------
EXPENSES
Employee compensation and benefits 306,218 381,823
Occupancy and equipment 52,795 51,629
Data processing and communications 43,212 37,411
Brokerage, exchange and clearance fees 20,672 22,662
Interest 155,554 118,408
Other 68,075 61,411
-----------------------------
TOTAL EXPENSES 646,526 673,344
-----------------------------
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT)
EXPENSE AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES AND
EXTRAORDINARY LOSS (15,225) 72,075
INCOME TAX (BENEFIT) EXPENSE (11,237) 18,499
--------- ---------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR INCOME TAXES
AND EXTRAORDINARY LOSS (3,988) 53,576
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES (BENEFIT) - (2,293)
--------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY LOSS (3,988) 55,869
EXTRAORDINARY LOSS, NET OF TAXES (1,141) -
--------- ---------
NET (LOSS) INCOME $ (5,129) $ 55,869
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
E-5
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at April 30, 1993 $ - $ 1 $ 126,722 $ 116,827 $ 243,550
Net income 55,869 55,869
Capital contributed 4,695 4,695
Dividends paid on preferred
stock (7,074) (7,074)
--------------------------------------------------------------------------
Balances at April 30, 1994 - 1 131,417 165,622 297,040
Net loss (5,129) (5,129)
Capital contributed 5,010 5,010
Dividends paid on preferred
stock (7,074) (7,074)
--------------------------------------------------------------------------
Balances at April 30, 1995 $ - $ 1 $ 136,427 $ 153,419 $ 289,847
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
E-6
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Year Ended
April 30,
---------
1995 1994
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (5,129) $ 55,869
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Non-cash charges (credits) included in net (loss) income:
Cumulative effect on prior years of
change in accounting for income taxes - (2,293)
Extraordinary loss, net of taxes 1,141
Deferred income tax (benefit) (3,878) (4,380)
Depreciation and amortization 4,325 2,442
Amortization of original issue discount and deferred
issuance costs on subordinated debentures 58 363
Amortization of goodwill 197 196
(Increases) decreases in assets:
Cash and securities segregated pursuant to Federal Regulations (100) 1,027
Securities borrowed (398,440) (199,726)
Receivable from brokers and dealers 33,366 6,121
Receivable from customers 31,885 (73,836)
Securities owned (552,038) 33,053
Securities purchased under agreements to resell 289,917 786,115
Other assets 1,594 (13,454)
Increases (decreases) in liabilities:
Drafts payable (6,510) 16,163
Securities sold under agreements to repurchase (269,075) (919,948)
Securities loaned 441,202 296,762
Payable to brokers and dealers 261,687 (4,654)
Payable to customers (90,785) (57,540)
Securities sold but not yet purchased 252,325 35,864
Accrued employee compensation and benefits (33,138) 36,462
Other liabilities and accrued expenses (16,956) 12,553
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES (58,352) 7,159
-------- --------
Cash flows (used in) investing activities:
Sales (purchases) of:
Exchange memberships 1,945 (295)
Furniture, fixtures and leasehold improvements - net (6,995) (4,120)
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (5,050) (4,415)
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
E-7
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Year Ended
April 30,
---------
1995 1994
------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in short-term borrowings 25,740 8,395
Issuance of notes payable 90,000 -
Additions to Account Executive Subordinated Indebtedness 250 205
Payments on Account Executive Subordinated Indebtedness (993) (985)
Redemption of 12 3/4% Subordinated Debentures due 2002 (23,193) (1,274)
Redemption of 12 3/4% Subordinated Debentures due 2003 (25,500) (2,232)
Contributed capital 5,010 4,695
Dividends paid on preferred stock (7,074) (7,074)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 64,240 1,730
--------- ---------
NET INCREASE IN CASH 838 4,474
Cash, beginning of year 11,579 7,105
--------- ---------
CASH, END OF YEAR $ 12,417 $ 11,579
--------- ---------
--------- ---------
</TABLE>
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid approximated $150,268,000 and $121,404,000 for the years ended
April 30, 1995 and 1994, respectively, and net payments to an affiliate under a
tax sharing agreement approximated $2,384,000 and $28,098,000, respectively.
The accompanying notes are an integral part of these financial statements.
E-8
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1995 AND 1994
NOTE l. SIGNIFICANT ACCOUNTING POLICIES
(a) Ownership and Consolidation
The consolidated financial statements include the accounts of Oppenheimer
Equities, Inc. ("Equities") and its wholly-owned subsidiaries (collectively, the
"Company"). The Company is a wholly-owned subsidiary of Oppenheimer Financial
Corp. ("OPFIN") and an indirect subsidiary of Oppenheimer Group, Inc. ("OGI").
The Company's principal subsidiary is Oppenheimer & Co., Inc. ("OPCO"), a
registered broker-dealer. All material intercompany balances and transactions
have been eliminated.
(b) Securities and Commodities Transactions
Customers' securities and commodities transactions are recorded on a
settlement date basis with related commission income and expenses recorded on a
trade date basis. Securities and commodities transactions of the Company are
recorded on a trade date basis.
Securities owned and securities sold but not yet purchased are valued at
market and the resulting unrealized gains and losses are reflected in income.
One-half of the total round-turn commission revenue and related expenses
are recorded at the time futures contracts are opened.
(c) Securities purchased under agreements to resell and
Securities sold under agreements to repurchase
Securities purchased under agreements to resell and securities sold
under agreements to repurchase are treated as collateralized financing
transactions and are included in the financial statements at their original
purchase or sale amounts plus accrued interest. It is the Company's policy to
take possession or control of securities purchased under agreements to resell.
The net fair value of repurchase and resale agreements approximates their
carrying value, as such financial instruments are predominantly short-term in
nature. The Company monitors the risk of loss by assessing the market value of
the underlying securities as compared to the related receivable or payable,
including accrued interest, and requests additional collateral where deemed
appropriate.
E-9
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) Furniture, Fixtures and Leasehold Improvements
Furniture, fixtures and leasehold improvements are carried at cost, less
accumulated amortization and depreciation. Depreciation of furniture and
fixtures is provided on a straight-line basis over five to eight year periods.
Amortization of leasehold improvements is provided on a straight-line basis over
the lesser of the economic useful lives of the improvements or the terms of the
leases.
(e) Investment Management Fees
Investment management fees are based on written contracts and computed
based on (i) the net asset value of the managed account, and/or (ii) the
performance of the managed account over a specified period. Such fees are
recognized in the period earned.
(f) Goodwill
The excess of cost over the value of certain assets acquired in 1982 is
reflected as goodwill and amortized on a straight-line basis over a period of 30
years. At April 30, 1995 and 1994, the accumulated amortization was $2,633,000
and $2,436,000, respectively.
NOTE 2. CASH AND SECURITIES SEGREGATED PURSUANT TO FEDERAL REGULATIONS
Cash and securities segregated pursuant to Federal Regulations includes
cash and short-term U.S. Government Obligations segregated under the
requirements of the Commodity Exchange Act and represents funds deposited by
customers and funds accruing to customers as a result of trades or contracts.
NOTE 3. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
(a) Balances receivable from customers are generally collateralized by
marketable securities. Payable to customers primarily represents free credit
balances of customers and amounts payable against receipts of marketable
securities. Receivable from customers includes approximately $482,000 and
$334,000 at April 30, 1995 and 1994, respectively, representing
security accounts of the Company's executive officers, directors or affiliates.
Payable to customers includes approximately $352,000 and $746,000 at April 30,
1995 and 1994, respectively, representing security accounts of the Company's
executive officers, directors or affiliates.
(b) Receivable from customers is net of an allowance for doubtful accounts
of $2,823,000 and $1,949,000 at April 30, 1995 and 1994, respectively.
E-10
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED
The positions at April 30, 1995 and 1994 consist of the following
securities:
<TABLE>
<CAPTION>
Sold But Not
Owned Yet Purchased
April 30, April 30,
--------- ---------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government
Obligations $578,520 $ 73,666 $397,892 $118,843
State and Municipal
Bonds 57,014 23,863 1,084 1,210
Corporate Bonds 84,846 106,513 13,595 50,003
Corporate Stock 99,689 63,687 42,455 32,414
Other 481 783 43 274
--------- --------- --------- ---------
$820,550 $268,512 $455,069 $202,744
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE 5. SHORT-TERM BORROWINGS
Short-term borrowings are generally obtained from banks at market rates and
include both secured and unsecured borrowings payable upon demand, as follows:
<TABLE>
<CAPTION>
April 30,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Borrowings secured by:
Securities owned (market value
$72,143,000 and $53,311,000,
respectively) $ 46,500 $ 28,000
Securities owned by customers,
(market value $12,675,000 and
$1,487,000, respectively) 9,500 760
--------- ---------
Total secured borrowings 56,000 28,760
Unsecured borrowings 137,000 138,500
--------- ---------
Total borrowings $193,000 $167,260
--------- ---------
--------- ---------
</TABLE>
E-11
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has satisfied collateral requirements with clearing
corporations and others at April 30, 1995 by obtaining letters of credit in the
aggregate amount of $115,971,000, which are secured by firm-owned securities
(market value $153,254,000), and unsecured letters of credit in the aggregate
amount of $63,295,000.
NOTE 6. NOTES PAYABLE
On June 15, 1994, the Company issued $32,500,000 of 8.98% Series A Senior
Secured Notes which mature on June 15, 1999 and $57,500,000 of 9.10% Series B
Senior Secured Notes which mature on June 15, 2000. The note purchase agreement
requires the Company to maintain certain financial levels and places
restrictions on certain business transactions. As of April 30, 1995, the Company
was in compliance with these requirements.
NOTE 7. COMMITMENTS AND CONTINGENCIES
(a) Long-Term Lease Commitments
The Company occupies office premises under non-cancelable leases expiring at
various dates through 2013. The Company's principal offices are located at
Oppenheimer Tower, World Financial Center, New York, New York. At April 30,
1995, aggregate minimum rental commitments for office space leases are
$28,555,000, $31,278,000, $31,780,000, $30,595,000 and $29,682,000 for each of
the years ending April 30, 1996 through April 30, 2000, respectively, and
$186,084,000 in aggregate thereafter. Such rentals include only fixed rentals.
The leases contain provisions for additional charges for operating expenses. For
the years ended April 30, 1995 and 1994, rent expense was $32,178,000 and
$32,775,000, respectively, net of sublease income of $6,817,000 and $6,855,000,
respectively.
(b) Litigation
Many aspects of the Company's business involve substantial risks of
potential liability. In the normal course of business, the Company has been
named a defendant in numerous civil actions. Several of these actions are class
actions, purportedly brought on behalf of various classes of claimants, which
demand damages in large or indeterminate amounts.
In view of the number and diversity of claims against the Company, the
number of jurisdictions in which litigation is pending and the inherent
difficulty of predicting the outcome of litigation and other claims, the Company
cannot state with certainty what the eventual outcome of pending litigation or
other claims will be. The amounts sought from the Company in pending litigation
and other claims are substantial and in the aggregate exceed the Company's net
worth. Nevertheless, after considering all relevant facts and the opinions of
the Company's General Counsel as well as outside counsel, it is the opinion of
the management of the Company that such litigation and other claims will not in
the aggregate have a material adverse effect on the Company's financial
position.
E-12
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. SUBORDINATED LIABILITIES
Subordinated Liabilities consist of the following:
<TABLE>
<CAPTION>
April 30,
---------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
12.75% Subordinated Debentures Due 2002
(Outstanding Principal Amount $23,193,000
for April 30, 1994) $ - $ 22,905
12.75% Subordinated Debentures Due 2003
(Outstanding Principal Amount $25,500,000
for April 30, 1994) - 24,052
Account Executive Subordinated Indebtedness 3,938 4,681
------- --------
$ 3,938 $ 51,638
------- --------
------- --------
</TABLE>
The Subordinated Liabilities are subordinated to all existing and future
claims of all nonsubordinated creditors of the Company and constitute part of
the Company's Net Capital under the Securities and Exchange Commission's (the
"SEC") Uniform Net Capital Rule 15c3-1 (the
"Uniform Net Capital Rule") and Commodity Exchange, Inc. ("COMEX") Rule 7.01,
Commodity Futures Trading Commission Regulation 1.17(d) and 1.17(h) and may be
repaid only if, after giving effect to such repayment, the Company meets the
specified requirements of the SEC and COMEX.
(a) The Debentures
On July 18, 1994, OPCO redeemed the 12.75% Subordinated Debentures Due 2002
and the 12.75% Subordinated Debentures Due 2003, which resulted in an
extraordinary loss, net of taxes, of $1,141,000.
(b) The Capital Loan
On December 28, 1993, OPCO entered into a Senior Subordinated
Revolving/Term Loan commitment (the "Capital Loan") with a group of banks which
are committed to lend, at OPCO's option, a maximum of $50,000,000. The Capital
Loan will be a revolving loan until December 28, 1995 at which time it will
convert to a term loan due one year later. The Capital Loan interest is based
on an index of the lender's reference rate and will be senior in right of
payment to the Debentures. At April 30, 1995, there was no outstanding balance
on this loan.
E-13
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) Account Executive Subordinated Indebtedness
Account Executive Subordinated Indebtedness represents unpaid bonuses plus
accrued interest related to plan years prior to May 1, 1991 under an Account
Executive Bonus Plan and subordinated debt agreement for retail sales account
executives who met certain eligibility requirements. These bonus earnings are
payable at the employee's option to the employee upon vesting, which occurs over
a five year period. Unpaid balances accrue interest annually at a rate equal to
the Company's average base lending rate. Effective May 1, 1991, bonuses
declared under the Account Executive Bonus Plan are no longer subject to a
subordinated debt agreement.
NOTE 9. INCOME TAXES
(a) Income Tax Allocation Agreement
The Company, its parent and indirect parents are part of a group which
files consolidated Federal and certain combined state and city income tax
returns. Pursuant to a tax allocation agreement, each entity is essentially
charged or credited with an amount equal to its separate tax
liability or benefit for the period. However, the current tax benefits realized
from the ownership by an affiliate of a limited partnership interest in the
Oppenheimer Tower are allocated to the members of the affiliated group based
upon the relative proportion of the Oppenheimer Tower office space which they
occupy. The Company receives a significant benefit because it occupies
substantially all of the Oppenheimer Tower office space.
(b) Change in Method of Accounting for Income Taxes
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 which changed the Company's method of accounting
for income taxes from the deferred approach (APB 11) to an asset and liability
approach. The asset and liability approach requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. The Company has reflected a benefit of $2,293,000 for the year
ended April 30, 1994 from the adoption of SFAS 109, representing the cumulative
effect on prior years of a change in accounting for income taxes.
E-14
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) Income Tax Expense
The effective income tax rates for the years ended April 30, 1995 and 1994
differ from the statutory Federal tax rate for the following reasons:
<TABLE>
<CAPTION>
For the Year
Ended April 30,
---------------
1995 1994
---- ----
<S> <C> <C>
Statutory Federal income tax rate 35% 35%
Exempt interest income 4 (2)
State and city income taxes, net
of Federal taxes 10 10
Deduction for qualifying dividends 2 (7)
Allocation of current tax benefits
realized by an affiliate from a
certain limited partnership
interest (See (a) above) 32 (11)
Foreign operations (1) 1
Disallowed expenses (7) 1
Other, net (1) (1)
--- ---
Effective income tax rate 74% 26%
--- ---
--- ---
<CAPTION>
For the Year
Ended April 30,
---------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Income tax (benefit) expense consists
of the following:
Current: Federal income taxes $ (7,745) $ 9,705
Foreign income taxes (265) 312
State and city income taxes 651 12,862
-------- ---------
(7,359) 22,879
-------- ---------
Deferred: Federal income taxes (970) (2,814)
State and city income taxes (2,908) (1,566)
-------- ---------
(3,878) (4,380)
-------- ---------
Total income tax (benefit) expense $(11,237) $ 18,499
-------- ---------
-------- ---------
</TABLE>
E-15
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) Income Taxes Payable to and Receivable From Affiliate
At April 30, 1994, other assets include $1,498,000 of current income
taxes receivable and $14,965,000 of deferred income tax receivable. At April
30, 1994, other assets include $11,297,000 of deferred income taxes receivable
and other liabilities and accrued expenses include $9,324,000 of current taxes
payable.
<TABLE>
<CAPTION>
April 30,
---------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
The deferred tax receivable (payable) is
comprised of the following items:
Deferred compensation and other
accrued expenses $ 17,210 $ 15,745
Investment in partnerships (3,528) (4,294)
Net unrealized appreciation in trading
and investment accounts (335) (290)
Depreciation 726 427
Net operating loss carryforward 1,359 -
Other (467) (291)
--------- ---------
Total $ 14,965 $ 11,297
--------- ---------
--------- ---------
</TABLE>
NOTE 10. TRANSACTIONS WITH AFFILIATED COMPANIES
(a) Investment Management Fees
The Company received investment management fees from affiliated
entities in the amounts of $11,390,000 and $12,194,000 during the years ended
April 30, 1995 and 1994, respectively.
(b) Other Services
The Company paid $8,221,000 and $7,373,000 during the years ended
April 30, 1995 and 1994, respectively, under the terms of a service agreement
with OGI, under which OGI provides certain services to the Company. The Company
provides various services to certain of its affiliates without charge or at the
Company's cost. The cost of providing services without charge is not material.
(c) Other Receivables and Payables
The Company loans and borrows funds to or from affiliates including
its parent and indirect parents. Other assets included non-interest bearing
receivables from affiliates in the amounts of $14,723,000 and $18,674,000, at
April 30, 1995 and 1994, respectively. At April 30, 1995 and 1994, other
liabilities included $3,045,000 and $7,158,000, respectively, of non-interest
bearing payables to affiliates.
E-16
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) Note Payable to Affiliate
Note payable to affiliate represents a $32,193,000 note to Oppenheimer
Capital, L.P., maturing in 2012 and bearing interest at 10%.
NOTE 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISK
In the normal course of business, the Company enters into securities
transactions. If the securities subject to such transactions are not in the
possession of the Company, the Company is subject to risk of loss if the
security is not received and the market value has increased over the contract
amount of the transactions.
The Company has sold securities that it does not currently own and
will therefore be obligated to purchase such securities at a future date. The
Company has recorded this obligation in the financial statements at the April
30, 1995 market value of the securities. The Company will incur a loss if the
market price of the securities increases subsequent to April 30, 1995.
The Company enters into various transactions in financial instruments
with off-balance-sheet risk in order to meet the needs of its clients, to manage
its exposure to market risks and in connection with its normal proprietary
trading activities. These transactions include the purchase and sale of forward
and futures contracts and the writing of exchange traded and over-the-counter
options. Each of these transactions contain varying degrees of off- balance-
sheet risks. Risks arise in financial futures and forward contracts from
unfavorable changes in currency exchange rates or in the market price of the
underlying financial instruments. In written options contracts, the firm
receives premiums at the outset and then bears the risk of unfavorable changes
in market values of the underlying instruments.
E-17
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The contractual or notional amounts of these instruments are set forth
below:
<TABLE>
<CAPTION>
April 30,
---------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Financial Futures Contracts:
Commitments to purchase $ 322,150 $ 214,614
Commitments to sell 337,100 154,737
Forward Foreign Currency Contracts:
Commitments to purchase 22,293 604,619
Commitments to sell 19,023 590,649
Options written:
Securities and stock indexes 33,474 63,591
Interest rate and other 5,400 31,296
</TABLE>
The notional or contractual amounts above do not represent the potential
market risk to the Company, but are an indication of the volume of these
transactions. Generally, these instruments are hedged with offsetting positions
or are utilized to reduce the Company's market risk.
The notional or contractual amounts of these instruments do not represent
the Company's exposure to credit risk. Credit risk arises from the failure of
the counterparty to perform according to the terms of the contract. The
Company's exposure to credit risk associated with these contracts is limited to
the current cost of replacing the contracts, on which the Company has recognized
unrealized gains of approximately $1,072,000 at April 30, 1995.
In the normal course of business, the Company executes, as agent,
securities and commodities transactions on behalf of its customers. If either
the customer or a counterparty fails to perform, the Company may be required to
discharge the obligations of the nonperforming party. In such circumstances,
the Company may sustain a loss if the market value of the security or futures
contract is different from the contract value of the transaction.
In the normal course of business, the Company may deliver securities as
collateral in support of various secured financing sources such as bank loans,
securities loaned and repurchase agreements. Additionally, the Company delivers
customer securities as collateral to satisfy margin deposits of various
exchanges. In the event the counterparty is unable to meet its contractual
obligation to return customer securities delivered as collateral, the Company
may be obligated to purchase the securities in order to return them to the
owner. In such circumstances, the Company may incur a loss up to the amount by
which the market value of the securities exceeds the value of the loan or other
collateral received or in the possession or control of the Company.
E-18
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the normal course of business, the Company, as general partner, is
contingently liable for the obligations of various limited partnerships engaged
primarily in securities investments and real estate activities. In the opinion
of the Company, such liabilities, if any, for the obligations of the
partnerships will not in the aggregate have a material adverse effect on the
Company's consolidated financial position.
The majority of the Company's transactions and, consequently, the
concentration of its credit exposure is with customers, broker-dealers and other
financial institutions in the United States. These activities primarily involve
collateralized arrangements and may result in credit exposure in the event that
the counterparty fails to meet its contractual obligations. The Company's
exposure to credit risk can be directly impacted by volatile securities markets
which may impair the ability of counterparties to satisfy their contractual
obligations. The Company seeks to control its credit risk through a variety of
reporting and control procedures, including establishing credit limits based
upon a review of the counterparties' financial condition and credit ratings.
The Company monitors collateral levels on a daily basis for compliance with
regulatory and internal guidelines and requests changes in collateral levels as
appropriate.
NOTE 12. ESTIMATED FAIR VALUE OF DERIVATIVE INSTRUMENTS
Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires the disclosure of information regarding derivative instruments, which
include financial futures, options, and forward contracts.
Derivative instruments held for trading purposes are reflected at fair
value at April 30, 1995. The following table presents the fair value and
average fair value (calculated using month end balances) of derivative financial
instruments at and for the year ended April 30, 1995.
<TABLE>
<CAPTION>
Average
Fair Fair
Value Value
----- -----
(In thousands)
<S> <C> <C>
ASSETS
Futures contracts $ 206 $ 301
Options 481 901
Forward contracts 121 1,912
LIABILITIES
Futures contracts 113 401
Options 56 457
Forward contracts 107 1,641
</TABLE>
E-19
<PAGE>
OPPENHEIMER EQUITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Trading and Investment Revenue for the year ended April 30, 1995,
originated from the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Equity Instruments - (including Convertible,
and related Derivatives) $ 61,997
Debt Instruments - (including U.S. Government,
Government Agencies, Mortgage Backed, Money Market,
Corporate and Municipal Debt, High Yield
and related Derivatives). 73,221
---------
Total Trading and Investment Revenue $ 135,218
---------
---------
</TABLE>
NOTE 13. NET CAPITAL REQUIREMENTS
As a registered broker-dealer and member firm of the New York Stock
Exchange ("NYSE"), OPCO is subject to the Uniform Net Capital Rule. OPCO has
elected to use the alternative method, permitted by the Uniform Net Capital
Rule, which requires that OPCO maintain minimum net capital, as defined, equal
to 2% of Aggregate Debit Items arising from customer transactions, as defined.
The NYSE may require a member firm to reduce its business if its net capital is
less than 4% of Aggregate Debit Items and may prohibit a member firm from
expanding its business and declaring dividends if its net capital is less than
5% of Aggregate Debit Items.
At April 30, 1995, OPCO's Net Capital under the Uniform Net Capital Rule
was $157,137,000, and the amounts in excess of 2%, 4% and 5% of Aggregate Debit
Items were $141,604,000, $126,072,000, and $118,305,000, respectively.
As a Futures Commission Merchant regulated by the Commodity Futures
Trading Commission ("CFTC"), OPCO is subject to the minimum capital
requirements adopted and administered by the CFTC and by certain commodity
exchanges in the United States and overseas. In the United States, OPCO is
required to maintain "adjusted net capital" equivalent to $250,000 or 4% of
funds required to be segregated, as defined by CFTC, whichever is greater.
OPCO is required to maintain net capital in accordance with the Uniform Net
Capital Rule or CFTC Regulation 1.17, whichever is greater. At April 30, 1995,
OPCO had a net capital requirement of $15,533,000.
E-20
