SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934.
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For the quarterly period ended October 31, 1997
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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For the transition period from _______ to _______
Commission file number: 1-9597
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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.)
800 NEWPORT CENTER DRIVE, SUITE 100
NEWPORT BEACH, CALIFORNIA 92660
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(Address of principal executive office) (Zip Code)
(714) 717-7022
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(Registrant's telephone number including area code)
NOT APPLICABLE
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(Former name, address and fiscal year, if changed since last report)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The issuer is a Limited Partnership. There were 25,776,615 Units of
limited partnership interest outstanding at December 15, 1997.
<PAGE>
OPPENHEIMER CAPITAL, L.P.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF FINANCIAL CONDITION 3
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF INCOME 4
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF CASH FLOWS 5
OPPENHEIMER CAPITAL, L.P.
NOTES TO THE FINANCIAL STATEMENTS 6
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 9
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF INCOME 10
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF CASH FLOWS 11
OPPENHEIMER CAPITAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
PART II - OTHER INFORMATION 19
SIGNATURES 20
- 2 -
<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
<TABLE>
<CAPTION>
At October 31, 1997 At April 30, 1997
----------------------- --------------------
ASSETS
<S> <C> <C>
Cash and short-term investments $ 123 $ 91
Investment in Oppenheimer Capital 26,914 26,796
Distribution receivable (Note 3) 22,702 17,090
10% Note due 2012 from Oppenheimer Equities, Inc. 32,193 32,193
Interest receivable 538 538
Other assets 140 136
Goodwill, net 38,001 39,305
----------------------- --------------------
TOTAL ASSETS $ 120,611 $ 116,149
======================= ====================
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Distribution payable to partners $ 23,542 $ 17,858
----------------------- --------------------
TOTAL LIABILITIES 23,542 17,858
----------------------- --------------------
General partner's capital 984 996
Limited partners' capital; 25,776,615 and 25,673,889
Units outstanding, respectively 96,085 97,295
----------------------- --------------------
TOTAL PARTNERS' CAPITAL 97,069 98,291
----------------------- --------------------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 120,611 $ 116,149
======================= ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF INCOME
(In Thousands, except for per unit amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Equity in earnings of Oppenheimer Capital:
Operating earnings $ 16,212 $ 12,495 $ 32,175 $ 23,963
Gain on Dual Purpose sale (Note 6) - - 2,809 -
----------- ----------- ----------- -----------
Total equity in earnings of Oppenheimer Capital 16,212 12,495 34,984 23,963
Interest 813 813 1,626 1,625
----------- ----------- ----------- -----------
TOTAL REVENUES 17,025 13,308 36,610 25,588
----------- ----------- ----------- -----------
EXPENSES
Amortization of goodwill 652 652 1,304 1,304
Other expenses (Note 4) 33 34 66 67
----------- ----------- ----------- -----------
TOTAL EXPENSES 685 686 1,370 1,371
----------- ----------- ----------- -----------
NET INCOME $ 16,340 $ 12,622 $ 35,240 $ 24,217
=========== =========== =========== ===========
NET INCOME PER UNIT (NOTES 2, 5 and 6) $ .63 $ .49 $ 1.35 $ .93
=========== =========== =========== ===========
DISTRIBUTIONS DECLARED PER UNIT $ .90 $ .45 $ 1.47 $ .84
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
OPPENHEIMER CAPITAL, L.P.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 35,240 $ 24,217
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions received (less than) the equity in
earnings of Oppenheimer Capital (3,844) (2,698)
Amortization of goodwill 1,304 1,304
(Increase) in other assets (4) (4)
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Net cash provided by operating activities 32,696 22,819
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Cash flows from investing activities
Capital contributions to Oppenheimer Capital (751) (380)
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Cash flows from financing activities Distributions to partners:
General partner (327) (228)
Limited partners (32,337) (22,571)
Issuance of limited partnership units on exercise of
restricted options 751 380
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Net cash (used in) financing activities (31,913) (22,419)
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Net increase in cash and short term investments 32 20
Cash and short term investments at beginning of period 91 35
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Cash and short term investments at end of period $ 123 $ 55
============== ==============
Supplemental disclosure of cash flow information:
New York City unincorporated business tax paid $ 70 $ 71
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO THE FINANCIAL STATEMENTS
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 67.6% interest in Oppenheimer
Capital (the "Operating Partnership"), a registered investment adviser. Opfin
holds the remaining 32.4% 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. (See Note 7)
2. Basis of Presentation:
The interim financial information in this report has not been audited.
The financial statements should be read in conjunction with the financial
statements included in the Partnership's 1997 Annual Report. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
all periods presented have been made. The results of operations for any interim
period are not necessarily indicative of the operating results for a full year.
Effective December 1, 1997 the Partnership effected a 1.67 to 1 split of
its units outstanding. All per unit information contained herein has been
calculated, or retroactively restated, to reflect that split.
3. Distribution Receivable:
On October 31, 1997, the Partnership had a distribution receivable of
$22.7 million from the Operating Partnership that was received on November 28,
1997.
4. 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, state
or local income taxes which are obligations of the individual partners.
- 6 -
<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
5. Net Income Per Unit:
(In thousands, except for per unit amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 16,340 $ 12,622 $ 35,240 $ 24,217
Less 1% applicable to the General Partner 163 126 352 242
----------- ----------- ----------- -----------
Net income available to the Limited Partners $ 16,177 $ 12,496 $ 34,888 $ 23,975
=========== =========== =========== ===========
Weighted average number of units outstanding 25,775 25,661 25,770 25,658
=========== =========== =========== ===========
Net income per unit $ .63 $ .49 $ 1.35 $ .93
=========== =========== =========== ===========
</TABLE>
6. Gain on Dual Purpose sale:
Included in "Equity in earnings of Oppenheimer Capital" for the six
months ended October 31, 1997 is a gain of $2.8 million, or $0.11 per unit,
resulting from the Operating Partnership's sale of the investment advisory and
other contracts and business relationships for its Quest for Value Dual Purpose
Fund to OppenheimerFunds, Inc., which is unrelated to the Operating Partnership.
7. Subsequent Event - Sale of Opfin Interest:
On November 4, 1997, PIMCO Advisors L.P. ("PIMCO Advisors") completed
its previously announced acquisition from Opfin of its 32.4% managing general
partner interest in the Operating Partnership and its 1% general partner
interest in the Partnership and certain subsidiaries of the Operating
Partnership.
On November 26, 1997, Opfin repaid in full the $32.2 million principal
amount of indebtedness to the Partnership (the "Equities Note").
On November 30, 1997, PIMCO Advisors completed its acquisition of the
remaining 67.6% interest in the Operating Partnership through a merger of the
Operating Partnership with a subsidiary of PIMCO Advisors. In the merger, the
Partnership received 25.5 million PIMCO Advisors units and became a general
partner of PIMCO Advisors. Concurrent with the merger, the Partnership acquired
an additional 0.5 million PIMCO Advisors units for $16.7 million in cash. On
December 1, 1997, a 1.67-for-one split of the Partnership units occurred having
the effect that each Partnership unit outstanding after the split represents an
economic interest in one PIMCO Advisors unit.
- 7 -
<PAGE>
OPPENHEIMER CAPITAL, L.P.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
7. Subsequent Event - Sale of Opfin Interest: (continued)
On December 1, 1997, the Amended and Restated Agreement of Limited
Partnership was amended to change its fiscal year to a calendar year.
Accordingly, the Partnership's fiscal year will now end December 31, instead of
April 30. The form on which the transition period will be filed will be the
Partnership's Annual Report on Form 10-k for the year ended December 31, 1997. A
similar amendment was made to the Amended and Restated Partnership Agreement of
the Operating Partnership.
PIMCO Advisors has announced a restructuring of its public ownership to
be effected after close of business on December 31, 1997. In the transaction, up
to 20.3 million PIMCO Advisors units held by the public unitholders of PIMCO
Advisors will be contributed to the Partnership in exchange for the issuance to
such persons by the Partnership of an equal number of units of the Partnership.
In addition, the Partnership will be renamed PIMCO Advisors Holdings L.P., and
the NYSE trading symbol will be changed from "OCC" to "PA". Thereafter, all
trading in the PIMCO Advisors units will cease, and the Partnership units will
be the sole publicly-traded investment in the larger and more diversified PIMCO
Advisors business.
- 8 -
<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands)
<TABLE>
<CAPTION>
At October 31, 1997 At April 30, 1997
----------------------- --------------------
ASSETS
<S> <C> <C>
Cash and short-term investments $ 36,800 $ 27,123
Investment management fees receivable 60,961 52,357
Investments in affiliated mutual funds and other
sponsored investment products 4,719 4,347
Furniture, equipment and leasehold improvements
at cost, less accumulated depreciation and
amortization of $3,149 and $2,812 3,690 3,795
Intangible assets, less accumulated amortization
of $1,013 and $565 1,187 1,511
Other assets 1,630 3,886
----------------------- --------------------
TOTAL ASSETS $ 108,987 $ 93,019
======================= ====================
<CAPTION>
LIABILITIES, MINORITY INTEREST AND PARTNERS' CAPITAL
<S> <C> <C>
Accrued employee compensation and benefits $ 19,614 $ 13,914
Accrued expenses and other liabilities 9,516 8,880
Note payable - 400
Deferred investment management fees 5,979 4,532
Distribution payable to partners 33,587 25,318
----------------------- ---------------------
TOTAL LIABILITIES 68,696 53,044
----------------------- ---------------------
Minority interest 473 277
PARTNERS' CAPITAL 39,818 39,698
----------------------- ---------------------
TOTAL LIABILITIES , MINORITY INTEREST
AND PARTNERS' CAPITAL $ 108,987 $ 93,019
======================= =====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Investment management fees $ 54,742 $ 43,286 $ 107,835 $ 82,720
Net distribution assistance and commission income 974 1,243 2,573 2,647
Interest and dividends 525 268 876 505
----------- ----------- ----------- -----------
TOTAL OPERATING REVENUES 56,241 44,797 111,284 85,872
----------- ----------- ----------- -----------
OPERATING EXPENSES
Compensation and benefits 24,535 18,760 48,526 36,370
Occupancy 1,739 1,650 3,496 3,143
General and administrative 3,343 3,338 6,467 6,125
Promotional 1,523 1,708 2,953 3,259
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 31,140 25,456 61,442 48,897
----------- ----------- ----------- -----------
OPERATING INCOME 25,101 19,341 49,842 36,975
Gain on Dual Purpose sale (Note 4) - - 4,374 -
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 25,101 19,341 54,216 36,975
Income taxes (Note 3) (1,038) (770) (2,256) (1,355)
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 24,063 18,571 51,960 35,620
Minority interest (77) (57) (196) (113)
----------- ----------- ----------- -----------
NET INCOME $ 23,986 $ 18,514 $ 51,764 $ 35,507
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
OPPENHEIMER CAPITAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 51,764 $ 35,507
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of restricted unit compensation expense 1,983 1,062
Depreciation and amortization 467 462
Minority interest, net of distributions 196 144
(Increase) decrease in:
Investment management fees receivable (8,604) (3,461)
Other assets 2,449 (704)
Increase in:
Accrued employee compensation and benefits 5,700 712
Accrued expenses and other liabilities 636 516
Deferred investment management fees 1,447 757
-------------- --------------
Net cash provided by operating activities 56,038 34,995
-------------- --------------
Cash flows from investing activities
Purchases of fixed assets (233) (380)
Proceeds from sales of mutual fund shares and other investments - 1,934
Purchases of mutual fund shares and other investments (372) (1,063)
-------------- --------------
Net cash provided by (used in) investing activities (605) 491
-------------- --------------
Cash flows from financing activities
Payment of note payable (400) (400)
Distributions to partners:
Oppenheimer Financial Corp. (14,967) (10,261)
Oppenheimer Capital, L.P. (31,140) (21,293)
Contributions by Oppenheimer Capital, L.P. 751 380
-------------- --------------
Net cash (used in) financing activities (45,756) (31,574)
-------------- --------------
Net increase in cash and short term investments 9,677 3,912
Cash and short term investments at beginning of period 27,123 21,019
-------------- --------------
Cash and short term investments at end of period $ 36,800 $ 24,931
============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ 39 $ 54
============== ==============
New York City unincorporated business tax paid $ 1,730 $ 1,452
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 11 -
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
Oppenheimer Capital (the "Operating Partnership"), a general
partnership, engages in the investment management business. Oppenheimer Capital,
L.P. (the "Partnership") holds a 67.6% general partner interest in the
Operating Partnership and Oppenheimer Financial Corp. ("Opfin") holds the
remaining 32.4% general partner interest. The Operating Partnership is
part of an affiliated group of companies operating in the financial
services industry. (See Note 5)
2. Basis of Presentation:
The interim financial information in this report has not been audited.
The financial statements should be read in conjunction with the financial
statements included in the Partnership's 1997 Annual Report. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
all periods presented have been made. The results of operations for any interim
period are not necessarily indicative of the operating results for a full year.
3. Taxes:
Although the Operating Partnership is not otherwise subject to Federal,
state or local income taxes, it was subject to New York City unincorporated
business tax ("UBT") of $1.0 million and $2.2 million, respectively, for the
three months and six months ended October 31, 1997 and $770,000 and $1.4
million, respectively, for the three months and six months ended October 31,
1996.
A domestic corporate subsidiary of the Operating Partnership is subject
to Federal, state, and local income taxes. A foreign corporate subsidiary is
subject to taxes in the foreign jurisdiction in which it is located.
4. Gain on Dual Purpose sale:
On July 18, 1997, the Operating Partnership completed the sale of the
investment advisory and other contracts and business relationships of the Quest
for Value Dual Purpose Fund to OppenheimerFunds, Inc., which is unrelated to the
Operating Partnership. The Operating Partnership received a payment of $7.0
million and recorded a gain of $4.4 million, before New York City UBT and
minority interest.
5. Subsequent Event - Sale of Opfin Interest:
On November 4, 1997, PIMCO Advisors L.P. ("PIMCO Advisors") completed
its previously announced acquisition from Opfin of its 32.4% managing general
partner interest in the Operating Partnership and its 1% general partner
interest in the Partnership and certain subsidiaries of the Operating
Partnership.
On November 30, 1997, PIMCO Advisors completed its acquisition of the
remaining 67.6% interest in the Operating Partnership through a merger of the
Operating Partnership with a subsidiary of PIMCO Advisors. In the merger, the
Partnership received 25.5 million PIMCO Advisors units and became a general
partner of PIMCO Advisors. Concurrent with the merger, the Partnership acquired
an additional 0.5 million PIMCO Advisors units for $16.7 million in cash. On
December 1, 1997, a 1.67-for-one split of the Partnership units occurred having
the effect that each Partnership unit outstanding after the split represents an
economic interest in one PIMCO Advisors unit.
On December 1, 1997, the Amended and Restated Agreement of Limited
Partnership was amended to change its fiscal year to a calendar year.
Accordingly, the Partnership's fiscal year will now end December 31, instead of
April 30. The form on which the transition period will be filed will be the
Partnership's Annual Report on Form 10-k for the year ended December 31, 1997. A
similar amendment was made to the Amended and Restated Partnership Agreement of
the Operating Partnership.
- 12 -
<PAGE>
OPPENHEIMER CAPITAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Subsequent Event - Sale of Opfin Interest: (continued)
PIMCO Advisors has announced a restructuring of its public ownership to
be effected after close of business on December 31, 1997. In the transaction, up
to 20.3 million PIMCO Advisors units held by the public unitholders of PIMCO
Advisors will be contributed to the Partnership in exchange for the issuance to
such persons by the Partnership of an equal number of units of the Partnership.
In addition, the Partnership will be renamed PIMCO Advisors Holdings L.P., and
the NYSE trading symbol will be changed from "OCC" to "PA". Thereafter, all
trading in the PIMCO Advisors units will cease, and the Partnership units will
be the sole publicly-traded investment in the larger and more diversified PIMCO
Advisors business.
- 13 -
<PAGE>
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPPENHEIMER CAPITAL, L.P.
General
Prior to December 1, 1997, the primary source of income for Oppenheimer
Capital, L.P. ( the "Partnership") has been its proportionate share of the net
income of Oppenheimer Capital (the "Operating Partnership") and interest income
on a $32.2 million par value 10% note due from Oppenheimer Equities, Inc. in the
year 2012 (the "Equities note"). In the future its primary source of income will
be its proportionate share of the net income of PIMCO Advisors L.P.
Effective December 1, 1997 the Partnership effected a 1.67 to 1 split
of its units outstanding. All per unit information contained herein has been
calculated, or retroactively restated, to reflect that split.
Revenues and Expenses
The Partnership recorded equity in earnings of the Operating
Partnership for the three months ended October 31, 1997 and October 31, 1996 of
$16.2 million and $12.5 million, respectively. For the six months ended October
31, 1997 and October 31, 1996, the Partnership recorded equity in earnings of
the Operating Partnership of $35.0 million and $24.0 million, respectively.
Equity in earnings of the Operating Partnership for the six months ended October
31, 1997 included a gain recognized by the Operating Partnership on the sale of
the investment advisory and other contracts and business relationships of the
Quest for Value Dual Purpose Fund, Inc. to OppenheimerFunds, Inc. (the "Dual
Purpose sale") of $2.8 million. Excluding the Dual Purpose sale, the increase in
equity in earnings of the Operating Partnership for all the periods presented is
primarily due to the higher operating income of the Operating Partnership.
Other expenses consist of New York City unincorporated business tax
("UBT"). For the three months ended October 31, 1997 and October 31, 1996, New
York City UBT totaled $33,000 and $34,000, respectively, and for the six months
ended October 31, 1997 and October 31, 1996, New York City UBT totaled $66,000
and $67,000, respectively.
Net income for the three months ended October 31, 1997 and October 31,
1996 amounted to $16.3 million and $12.6 million, respectively, or $.63 per unit
and $.49 per unit, respectively. Net income for the six months ended October 31,
1997 and October 31, 1996 amounted to $35.2 million and $24.2 million,
respectively, or $1.35 per unit and $.93 per unit, respectively.
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. The Partnership distributes its available cash flow
to its partners, which equals cash distributions from the Operating Partnership
plus interest income from the Equities note 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 three and six
months ended October 31, 1997, the Partnership declared distributions to
Unitholders of $.90 per unit and $1.47 per unit, respectively. For the three and
six months ended October 31, 1996, the Partnership declared distributions to
Unitholders of $.45 per unit and $.84 per unit, respectively.
- 14 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
OPPENHEIMER CAPITAL, L.P. (Continued)
Sale of Opfin Interest
On November 4, 1997, PIMCO Advisors L.P. ("PIMCO Advisors") completed
its previously announced acquisition from Opfin of their 32.4% managing general
partner interest in the Operating Partnership and their 1% general partner
interest in the Partnership.
On December 1, 1997, PIMCO Advisors announced the conclusion of its
acquisition of the remaining 67.6% interest in the Operating Partnership held by
the Partnership for 26.1 million of PIMCO Advisors Class A units. Additionally
on December 1, 1997, each unit of the Partnership was split 1.67 to 1, with the
result that each unit, after the split, represented an economic interest in one
PIMCO Advisors Class A unit.
In addition, PIMCO Advisors announced that on December 31, 1997 it will
contribute up to 20.3 million of its units to the Partnership in return for an
equivalent number of Partnership units. The Partnership units will then be
issued to the public unitholders of PIMCO Advisors. At the same time, the
Partnership will be renamed PIMCO Advisors Holdings, L.P. and will continue to
be traded on the New York Stock Exchange, but under the ticker symbol "PA". As
is currently the case with the Partnership, PIMCO Advisors Holdings, L.P. is
expected to distribute substantially all of its after-tax cash flows to
unitholders. Following these transactions, unitholders will own units in PIMCO
Advisors Holdings, L.P., which will have an interest of as much as 43% in a
larger and more diversified firm.
- 15 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
OPPENHEIMER CAPITAL
General
The Operating Partnership's results of operations include those of its
basic institutional investment management business and those of its subsidiary
entities; Opcap Advisors ("Advisors"), OCC Distributors ("Distributors"),
Oppenheimer Capital Limited, Oppenheimer Capital Trust Company ("Opcap Trust"),
and 225 Liberty Street Advisers, L.P., formerly AMA Investment Advisers, L.P.
("AMA Advisers"). The results for the six months ended October 31, 1996 also
include Saratoga Capital Management ("Saratoga"), which was sold on April 29,
1997.
For the periods presented, the Operating Partnership's operations have
been characterized by substantial increases in assets under management. This
growth has been from four 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 and
variable annuities managed by Advisors have added to assets under management due
to increased sales and market appreciation. Fourth, wrap fee assets have
increased due to new accounts opened, expanded distribution to broker-dealers
and market appreciation. Revenues are generally derived from charging a fee
based on the net assets of clients' portfolios. All periods presented show
increased operating revenue. Revenues for all periods presented consist
principally of investment management fees.
In fiscal 1996, the Operating Partnership began to implement a
strategic decision to withdraw from selling directly to the retail market, and
to instead market directly to institutions with strong retail distribution
capabilities. In November 1995, the Operating Partnership withdrew from the
open-end mutual fund distribution business and began to eliminate retail
operations at AMA Advisers, completing this process in the first quarter of
fiscal 1997. The Operating Partnership also reduced the losses incurred by
Saratoga throughout fiscal 1997, and during the fourth quarter of fiscal 1997
sold its interest in Saratoga. Additionally, the Operating Partnership
terminated the distribution of unit investment trusts during the fourth quarter
of fiscal 1997.
On July 18, 1997, the Operating Partnership completed the sale of the
investment advisory and other contracts and business relationships of its Quest
for Value Dual Purpose Fund to OppenheimerFunds, Inc. ("OFI"), which is
unrelated to the Operating Partnership (the `Dual Purpose Fund sale"). The fund
has been renamed the Oppenheimer Quest Capital Value Fund, and continues to be
managed by Advisors under a subadvisory agreement with OFI.
As shown below, the value of assets under management increased 31.5% to
$60.2 billion at October 31, 1997 from $45.8 billion at October 31, 1996. The
Operating Partnership continued to experience growth in its traditional
business, the management of separate accounts for large financial institutions
and high-net-worth individual investors, as well as its retail businesses,
including mutual funds and wrap fee accounts.
<TABLE>
<CAPTION>
Percent
At October 31, 1997 At October 31, 1996 Increase
----------------------- ----------------------- -------------
<S> <C> <C> <C>
Separate Account Management $ 37,053 $ 30,771 20.4%
Wrap Fee 7,835 4,603 70.2%
Mutual Funds & Other Commingled Products 15,288 10,398 47.0%
----------------------- ----------------------- -------------
Total $ 60,176 $ 45,772 31.5%
======================= ======================= =============
</TABLE>
- 16 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
OPPENHEIMER CAPITAL (Continued)
Operating Revenues
Total operating revenues increased 25.8% for the three months ended
October 31, 1997 to $56.2 million from $44.8 million for the three months ended
October 31, 1996 and increased 29.6% for the six months ended October 31, 1997
to $111.3 million from $85.9 million for the six months ended October 31, 1996.
Total operating revenues include investment management fees, net distribution
assistance and commission income, and interest and dividends.
Investment management fees increased 26.5% for the three months ended
October 31, 1997 to $54.7 million from $43.3 million for the three months ended
October 31, 1996 as average assets under management for the three months ended
October 31, 1997 increased 39.2% to $60.2 billion from $43.2 billion for the
three months ended October 31, 1996. Investment management fees increased 30.4%
for the six months ended October 31, 1997 to $107.8 million from $82.7 million
for the six months ended October 31, 1996 as average assets under management for
the six months ended October 31, 1997 increased 35.8% to $57.6 billion from
$42.4 billion for the six months ended October 31, 1996. For the periods
presented, the growth in investment management fee revenue was tempered by the
Dual Purpose Fund sale. Concurrent with this sale, the present fee rate earned
as a subadvisor to the fund is substantially lower than the fee rate that was
earned prior to the sale. In addition, investment management fee revenue grew
less than assets under management due to accounts generally having a decremental
fee rate - as the market value of an account increases, the effective fee rate
declines.
Net distribution assistance and commission income decreased 21.6% to
$1.0 million for the three months ended October 31, 1997 from $1.2 million for
the three months ended October 31, 1996, and decreased 2.8% to $2.6 million for
the six months ended October 31, 1997 from the six months ended October 31,
1996. The decrease for the three months ended October 31, 1997 compared to
October 31, 1996 was due to lower certificate of deposit commission income
resulting from reduced demand for funds by banks, and lower unit investment
trust commission income as a result of the Operating Partnership's decision to
withdraw from this business during the fourth quarter of fiscal 1997. The
minimal decrease for the six month period was caused by the decision to withdraw
from the unit investment trust business.
Interest and dividend income increased to $525,000 and $876,000 for the
three months and six months ended October 31, 1997, respectively, from $268,000
and $505,000 for the three and six months ended October 31, 1996, respectively.
These increases can be primarily attributed to higher average cash balances.
Operating Expenses
Total expenses increased 22.3% for the three months ended October 31,
1997 to $31.1 million from $25.5 million for the three months ended October 31,
1996 and increased 25.7% for the six months ended October 31, 1997 to $61.4
million from $48.9 million for the six months ended October 31, 1996.
The Operating Partnership's most significant category of expense is
employee compensation and benefits, which includes salaries, bonuses, sales
commissions, incentive compensation and other payroll related expenses.
Compensation and benefits expense increased 30.8% for the three months ended
October 31, 1997 to $24.5 million from $18.8 million for the three months ended
October 31, 1996 and increased 33.4% for the six months ended October 31, 1997
to $48.5 million from $36.4 million for the six months ended October 31, 1996.
Compensation and benefits expense increased primarily due to higher incentive
compensation costs due to increased new business, higher operating profits and
increased participation by key executives in incentive compensation plans as a
result of industry competitive pressures and their individual contributions to
firm profitability. In addition, compensation and benefits expense increased due
to higher amortization expenses related to restricted units granted to certain
key employees on May 1, 1997, as well as staff salary increases and additions to
staff to support expanding businesses. These increases were offset in part by
staff reductions as a result of the sale of the Operating Partnership's 50%
interest in Saratoga and the decision to withdraw from the distribution of unit
investment trusts.
- 17 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
OPPENHEIMER CAPITAL (Continued)
Operating Expenses (Continued)
Occupancy expenses increased 5.4% for the three months ended October
31, 1997 to $1.7 million from the three months ended October 31, 1996 and
increased 11.2% for the six months ended October 31, 1997 to $3.5 million from
$3.1 million for the six months ended October 31, 1996. These increases were due
to higher rent expense incurred by the Operating Partnership, as well as
adjustments to rent escalation accruals which were made during the quarters
ended July 31, 1997 and 1996.
General and administrative expenses for the three months ended October
31, 1997 and October 31, 1996 were $3.3 million. For the six months ended
October 31, 1997, general and administrative expenses increased 5.6% to $6.5
million from $6.1 million for the six months ended October 31, 1996. For the six
months ended October 31, 1997, the increase in general and administrative
expenses reflects increased costs incurred in connection with the development of
new businesses and increased investments in computer equipment and software as a
result of increased technical support for professional and administrative staff
and higher professional services expense due to the expansion of the Operating
Partnership's business. This increase was offset in part by savings realized
from the sale of the Operating Partnership's interest in Saratoga.
Promotional expenses decreased 10.8% for the three months ended October
31, 1997 to $1.5 million from $1.7 million for the three months ended October
31, 1996 and decreased 9.4% for the six months ended October 31, 1997 to $3.0
million from $3.3 million for the six months ended October 31, 1996. The
decrease in promotional expenses was due primarily to the elimination of costs
incurred by Saratoga and the elimination of the retail distribution of unit
investment trusts. This decrease was offset in part by increased travel and
entertainment expenses as a result of increased staff size and new business
activities.
Operating Income
Operating income for the three months ended October 31, 1997 increased
29.8% to $25.1 million from $19.3 million for the three months ended October 31,
1996 and increased 34.8% for the six months ended October 31, 1997 to $49.8
million from $37.0 million for the six months ended October 31, 1996. For the
three months ended October 31, 1997, the operating profit margin expanded to
44.6% from 43.2% for the three months ended October 31, 1996 as operating
revenues grew 25.5% while expenses increased only 22.3%. For the six months
ended October 31, 1997, the operating profit margin expanded to 44.8% from 43.1%
for the six months ended October 31, 1996 as operating revenues grew 29.6% while
expenses increased only 25.7%.
Taxes
The Operating Partnership is not subject to Federal, state, or local
income taxes, which are the obligations of the individual partners. The
Operating Partnership, however, was subject to New York City UBT of $1.0 million
and $2.2 million, respectively, for the three months and six months ended
October 31, 1997 and $770,000 and $1.4 million, respectively, for the three
months and six months ended October 31, 1996.
Liquidity and Capital Resources
The Operating Partnership's business is not capital intensive and its
working capital requirements are generally modest. On October 31, 1997, the
Operating Partnership declared a distribution to its partners of $33.6 million
which was paid on November 28, 1997.
- 18 -
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
On November 10, 1997, Richard Buzby filed an action on behalf of a
purported class of limited partners of the Partnership against PIMCO Advisors
and certain individuals associated with the previous general partner of the
Partnership in the Court of Chancery of the State of Delaware, New Castle
County. The complaint alleges, among other things, various breaches of fiduciary
duty, conflicts of interest and unfair dealing in connection with the
Oppenheimer Capital Merger. The complaint seeks compensatory and/or
rescissionary money damages or, alternatively, injunctive relief or rescission
of the transactions. Since that date, certain other complaints have been filed
in the states of Delaware and New York, making similar allegations. These cases
are expected to be consolidated in the Court of Chancery of the State of
Delaware, New Castle County. The Partnership and PIMCO Advisors believe the
suits are without merit, and intend to contest them vigorously.
Except as described above, there are no material legal proceedings
pending or, to the knowledge of management, threatened against the Partnership
or PIMCO Advisors.
- 19 -
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
By: Oppenheimer Capital, L.P.
Date: December 15, 1997 By: /s/ William D. Cvengros
William D. Cvengros
Chief Executive Officer
By: /s/ Robert M. Fitzgerald
Robert M. Fitzgerald
Senior Vice President and
Chief Financial Officer
- 20 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF FINANCIAL CONDITION AND STATEMENTS OF INCOME FOUND ON PAGES 3 AND
4 OF THE PARTNERSHIP'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000814562
<NAME> OPPENHEIMER CAPITAL, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 123
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,363<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 120,611<F2>
<CURRENT-LIABILITIES> 23,542
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 97,069<F3>
<TOTAL-LIABILITY-AND-EQUITY> 120,611
<SALES> 0
<TOTAL-REVENUES> 36,610
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,240
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,240
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<FN>
<F1> CURRENT ASSETS IS COMPRISED OF CASH ($123), DISTRIBUTION RECEIVABLE
($22,702), AND INTEREST RECEIVABLE ($538)
<F2> TOTAL ASSETS INCLUDE CURRENT ASSETS PLUS INVESTMENT IN OPPENHEIMER CAPITAL
($26,914), A NON-TRADE NOTE RECEIVABLE ($32,193), GOODWILL ($38,001) AND
OTHER ASSETS ($140)
<F3> OTHER SHAREHOLDERS EQUITY IS COMPROSED OF GENERAL PARTNER'S CAPITAL
($984) AND LIMITED PARTNERS' CAPITAL ($96,085)
</FN>
</TABLE>
