UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

or

Commission File Number: 1-12043

OPPENHEIMER HOLDINGS INC.

P.O. Box 2015, Suite 1110

20 Eglinton Avenue West

Toronto, Ontario, Canada   M4R 1K8

(Address of principal executive offices)

(Zip Code)

416-322-1515

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether 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 þ[ X ]  No o[  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ[X]  No o[  ]

The number of shares of the Company’s Class A non-voting shares and Class B voting shares (being the only classes of common stock of the Company) outstanding on May 10,July 31, 2005 was 13,024,44112,840,741 and 99,680 shares, respectively.

OPPENHEIMER HOLDINGS INC.

INDEX

INDEX

PART 1
FINANCIAL INFORMATION

Item. 1Financial Statements

OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

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OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) CONTINUED

FOR THE THREE MONTHS ENDED MARCH 31,

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPPENHEIMER HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS’ EQUITY (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31,

The accompanying notes are an integral part of these condensed consolidated financial statements.

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OPPENHEIMER HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements    (Unaudited)

1.Summary of significant accounting policies

The condensed consolidated financial statements include the accounts of Oppenheimer Holdings Inc. (“OPY”) and its subsidiaries (together, the “Company”). The principal subsidiaries of OPY are Oppenheimer & Co. Inc. (“Oppenheimer”), a registered broker-dealer in securities, and Oppenheimer Asset Management Inc. (“OAM”), a registered investment advisor under the Investment Advisors Act of 1940. Oppenheimer operates as Fahnestock & Co. Inc. in Latin America. Oppenheimer owns Freedom Investments, Inc. (“Freedom”), a registered broker dealer in securities, which operates its BUYandHOLD division, offering online discount brokerage and dollar-based investing services. The Company engages in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, and investment advisory and asset management services.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These accounting principles are set out in the notes to the Company’s consolidated financial statements for the year ended December 31, 2004 included in its Annual Report on Form 10-K10-K/A for the year ended December 31, 2004.  Disclosures reflected in these condensed consolidated financial statements comply in all material respects with those required pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) with respect to quarterly financial reporting.

The financial statements include all adjustments, which in the opinion of management are normal and recurring and necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented. The nature of the Company’s business is such that the results of operations for the interim periods are not necessarily indicative of the results to be expected for a full year.

Certain prior period expenses in the statement of operations have been reclassified to conform to the current year presentation.

These condensed consolidated financial statements are presented in U.S. dollars.

2.
Restatements of Prior Period Financial Statements
Subsequent to the issuance of its financial statements for the year ended December 31, 2004, considering the open letter to the American Institute of Certified Public Accountants from the Chief Accountant of the SEC dated February 7, 2005, the Company undertook a review of its real estate lease accounting policies and is correcting its method of accounting for certain leases by restating its financial statements for the year ended December 31, 2004. The Company is also restating its financial statements for the fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 with respect to the same issue. The error resulted in the understatement of property, plant and equipment, net and liabilities and the overstatement of profit before taxes and net profit for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, as well as the year ended December 31, 2004.

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The correction involves recording expense for leases with escalating rents on a straight-line basis over the lease term, rather than as paid, and correctly accounting for landlord incentives, to record leasehold amortization expense and deferred incentive amortization. The Company had previously either not recorded the landlord incentives, or recorded them as a reduction to leasehold improvements, rather than as a rental incentive.

In addition, the Company’s interest expense on its variable rate exchangeable debentures is being adjusted amongst the four quarters of 2004. In its Annual Report on Form 10-K for the year ended December 31, 2004, the Company had recorded an immaterial cumulative net adjustment in the fourth quarter of $355,000. With the restatement of the 2004 quarters, the Company has chosen to record the applicable interest expense in each quarter rather than recording the impact of the matter of the interest method as a fourth quarter adjustment. There is no impact on net profit for the year ended December 31, 2004 of the interest method matter. The Company has restated its Condensed Consolidated Balance Sheets as at March 31, 2004, as well as its Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Shareholders’ Equity as well as notes 4, 5, 7 and 11 of Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 2005 to reflect the restatement described above.

The impact of the restatement on net profit is a reduction in net profit of $1,423,000 for the year ended December 31, 2004, and reductions of $1,185,000, $142,000 and $179,000, respectively, for the quarters ended March 31, June 30 and September 30, 2004. The impact of the error on the quarters and years prior to 2004 was immaterial. Consequently, the cumulative net effect of the error of $779,000 as of December 31, 2003 has been recorded in the first quarter of 2004.

Unrelated to the restatement of the 2004 financial statements, the Company has reclassified communications and technology expense and occupancy costs for the three months ended March 31, 2004 to conform with current presentation.

The following table isolates each of the restated amounts in the Company’s condensed consolidated financial statements for the three months ended March 31, 2004 and for the year ended December 31, 2004 (balance sheet only):

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3.2. Recent Accounting Pronouncements

4.

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3. Stock based compensation

The following presents the pro forma income and earnings per share impact, using a fair-value-based calculation, of the Company’s stock-based compensation. Amounts are expressed in thousands of U.S. dollars except per share amounts.

For purposes of the pro forma presentation, the Company determined fair value using the Black-Scholes option pricing model. The weighted average fair value of options granted during the three and six months ended March 31,June 30, 2005 and 2004, respectively, was $437,000nil and $1,094,000.$85,000, respectively, and $771,000 and $2,016,000, respectively. The fair value is being amortized over five years on an after-tax basis for purposes of pro forma presentation. Stock options generally expire five years after the date of grant or three months after the date of retirement, if earlier. Stock options generally vest over a five year period with 0% vesting in year one, 25% of the shares becoming exercisable on each of the next three anniversaries of the grant date and the balance vesting in the last six months of the option life. The vesting period is at the discretion of the Compensation and Stock Option Committee and is determined at the timet ime of grant.

5.

4. Earnings per share

Earnings per share was computed by dividing net profit by the weighted average number of Class A non-voting shares (“Class A Shares”) and Class B voting shares (“Class B Shares”) outstanding. Diluted earnings per share includes the weighted average Class A and Class B Shares outstanding and the effects of exchangeable debentures using the if converted method and Class A Share options using the treasury stock method.

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Earnings per share has been calculated as follows:

6.(1)

As part of the consideration for the 2003 acquisition of the Oppenheimer divisions, the Company issued First and Second Variable Rate Exchangeable Debentures which are exchangeable for approximately 6.9 million Class A Shares of the Company at the rate of $23.20 per share (approximately 35% of the outstanding Class A Shares, if exchanged). The net effect of the if converted method is anti-dilutive for the three months ended June 30, 2004.

(2)

The net effect of the treasury method is anti-dilutive for the three months ended June 30, 2005. The diluted EPS computations do not include the antidilutive effect of the following options:

5. Securities owned and securities sold, but not yet purchased (at fair market value)

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Securities owned and securities sold, but not yet purchased, consist of trading securities at fair market values. Included in securities owned at March 31,June 30, 2005 are securities with fair market values of approximately $13,854,000$13,681,000 ($15,097,000 at December 31, 2004), which are related to deferred compensation liabilities to former employees of CIBC World Markets. At March 31,June 30, 2005, the Company had pledged securities owned of approximately $834,000$1,798,000 ($3,333,000 at December 31, 2004) as collateral to counterparties for stock loan transactions, which can be sold or repledged.

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6. Long term debt and exchangeable debentures

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capital of Oppenheimer. As at June 30, 2005, the Company was in compliance with the covenants. For the three and six months ended June 30, 2005 and 2004, respectively, interest expense on bank loans was $428,000 and $581,000, respectively, and $878,000 and $1,106,000, respectively.

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(b) The Zero Coupon Promissory Note is repayable as related employee notes receivable, which are assigned to Oppenheimer, become due or are forgiven. Such payments are to be made notwithstanding whether any of the employees’ loans default. The estimated current portion due on the Zero Coupon Promissory Note is $10,155,000.

(c) The First and Second Variable Rate Exchangeable Debentures are exchangeable for approximately 6.9 million Class A Shares of the Company at the rate of $23.20 per share. The annual interest rate is 3% in 2003, 4% in 2004 - 2006, and 5% in 2007 through maturity. The First and Second Variable Rate Exchangeable Debentures, which mature on January 2, 2013, contain a retraction clause, which may be activated by the holder for a period of 120 days at the end of year seven. Interest is payable semi-annually in June and December. For the three and six months ended June 30, 2005 and 2004, respectively, interest expense on the First and Second Variable Rate Exchangeable Debentureswas $1,829,000 and $1,829,000, respectively, and $3,637,000 and $3,659,000, respectively. Under the interest method, the effective annual interest rate over the life of the First and Second Variable Rate Exchangeable Debentures is 4.5% .

7. Net Capital Requirements

The Company’sCompany's major subsidiaries, Oppenheimer and Freedom, are subject to the uniform net capital requirements of the SEC under Rule 15c3-1 (the “Rule”). Oppenheimer computes its net capital requirements under the alternative method provided for in the Rule which requires that Oppenheimer maintain net capital equal to two percent of aggregate customer-related debit items, as defined in SEC Rule 15c3-3. At March 31,June 30, 2005, the net capital of Oppenheimer as calculated under the Rule was $202,717,000$200,685,000 or 18.4%14.27% of Oppenheimer’sOppenheimer's aggregate debit items. This was $180,731,000$172,557,000 in excess of the minimum required net capital. Freedom computes its net capital requirement under the basic method provided for in the Rule, which requires that Freedom maintain net capital equal to the greater of $250,000 or 6 2/3% of aggregate indebtedness, as defined. At March 31,June 30, 2005, Freedom had net capital of $5,749,000,$6,248,000, which was $5,499,000$5 ,998,000 in excess of the $250,000 required to be maintained at that date.

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8. Securities lending activities

Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced or received.

Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. The Company receives cash or collateral in an amount generally in excess of the market value of securities loaned.

The Company monitors the market value of securities borrowed and loaned on a daily basis and may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

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Included in receivable from brokers and clearing organizations are deposits paid for securities

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borrowed of $392,611,000$452,877,000 (at December 31, 2004 —- $415,288,000). Included in payable to brokers and clearing organizations are deposits received for securities loaned of $681,471,000 (at$ 762,013,000(at December 31, 2004 —- $641,393,000).

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9. Financial instruments with off-balance sheet risk and concentration of credit risk

In the normal course of business, the Company’sCompany's securities activities involve execution, settlement and financing of various securities transactions. These activities may expose the Company to risk in the event customers, other brokers and dealers, banks, depositories or clearing organizations are unable to fulfill their contractual obligations.

The Company is exposed to off-balance sheet risk of loss on unsettled transactions in the event customers and other counterparties are unable to fulfill their contractual obligations. It is the Company’sCompany's policy to periodically review, as necessary, the credit standing of each counterparty with which it conducts business.

Securities sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Accordingly, these transactions result in off-balance sheet risk, as the Company’sCompany's ultimate obligation to satisfy the sale of securities sold, but not yet purchased may exceed the amount recognized on the balance sheet. Securities positions are monitored on a daily basis.

The Company’sCompany's customer financing and securities lending activities require the Company to pledge customer securities as collateral for various financing sources such as bank loans and securities lending. At March 31,June 30, 2005, the Company had approximately $1.3 billion of$1.7 billionof customer securities under customer margin loans that are available to be pledged, of which the Company has repledged approximately $394,304,000$454,896,000 under securities loan agreements. In addition, the Company has received collateral of approximately $380,394,000$436,371,000 under securities borrow agreements, of which the Company has repledged approximately $286,245,000$305,155,000 as collateral under securities loan agreements. Included in receivable from brokers and clearing organizations are receivables from five major U.S. broker-dealers totaling $246,699,000.$269,328,000.

The Company monitors the market value of collateral held and the market value of securities receivable from others. It is the Company’sCompany's policy to request and obtain additional collateral when exposure to loss exists. In the event the counterparty is unable to meet its contractual obligation to return the securities, the Company may be exposed to off-balance sheet risk of acquiring securities at prevailing market prices.

At March 31,June 30, 2005, the Company had outstanding commitments to buy and sell of $525,000$983,000 and $280,000,$606,000, respectively, of mortgage-backed securities on a when issued basis. These commitments have off-balance sheet risks similar to those described above.

The Company has a clearing arrangement with Pershing LLC to clear certain transactions in foreign securities. Accordingly, the Company has credit exposures with this clearing broker. The clearing broker can rehypothecate the securities held on behalf of the Company. The clearing

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broker has the right to charge the Company for losses that result from a client’sclient's failure to fulfill its contractual obligations. As the right to charge the Company has no maximum amount and

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applies to all trades executed through the clearing broker, the Company believes there is no maximum amount assignable to this right. At March 31,June 30, 2005, the Company had recorded no liabilities with regard to this right. The Company’sCompany's policy is to monitor the credit standing of this clearing broker, all counterparties and all clients with which it conducts business.

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10. Related Party Transactions

The Company does not make loans to its officers and directors except under normal commercial terms pursuant to client margin account agreements. These loans are fully collateralized by such employee-owned securities.

12.

11. Segment Information

The table below presents information about the reported operating income of the Company for the periods noted,noted. The Company’s segments are described in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2004. The Company’s business is conducted primarily in the United States.   Asset information by reportable segment is not reported, since the Company does not produce such information for internal use.

The Company has made changes to its reportable segments in an attempt to refine the allocation of general, administrative and operating costs amongst the Company’s reportable segments. Prior period results have been conformed with the current year presentation.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Reference is also made to the Company’s consolidated financial statements and notes thereto found in its Annual Report on Form 10-K/A Amendment No. 1 for the year ended December 31, 2004. The Company has restated its 2004 financial statements. See Note 2 of the Notes to the Condensed Consolidated Financial Statements for further discussion.

The Company engages in a broad range of activities in the securities industry, including retail securities brokerage, institutional sales and trading, investment banking (both corporate and public finance), research, market-making, and investment advisory and asset management services. The Company provides its services from 81 offices in 21 states located throughout the United States. The Company conducts business from 2 offices in South America through local broker-dealers. Client assets entrusted to the Company as at March 31,June 30, 2005 totaled approximately $46.9$49.7 billion. The Company provides investment advisory services through Oppenheimer Asset Management Inc. and Fahnestock Asset Management, operating as a division of Oppenheimer. The Company provides trust services and products through Oppenheimer Trust Company. The Company provides discount brokerage services through Freedom Investments Inc. and through BUYandHOLD,BUYan dHOLD, a division of Freedom. At March 31,June 30, 2005, client assets under management by the asset management groups totaled $10.5$10.9 billion. At March 31,June 30, 2005, the Company employed approximately 2,7912,787 people, of whom 1,611[1,420] were financial consultants.

Critical Accounting Policies

The Company’s accounting policies are essential to understanding and interpreting the financial results reported in the condensed consolidated financial statements. The significant accounting policies used in the preparation of the Company’s condensed consolidated financial statements are summarized in note 1 to those statements. Certain of those policies are considered to be particularly important to the presentation of the Company’s financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

During the three and six months ended March 31,June 30, 2005, there were no material changes to matters discussed under the heading “Critical Accounting Policies” in Part II, Item 7 of the Company’s Annual Report on Form 10-K10-K/A for the year ended December 31, 2004.

Business Environment

The securities industry is directly affected by general economic and market conditions, including fluctuations in volume and price levels of securities and changes in interest rates, inflation, political events, investor participation levels, legal and regulatory, accounting, tax and compliance requirements and competition, all of which have an impact on commissions, firm trading, fees from accounts under investment management, and investment income as well as on liquidity. Substantial fluctuations can occur in revenues and net income due to these and other factors.

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Increasingly challenging market conditions in the first

The second quarter of 2005 impacted revenue and produced reduced levels of transaction based business and significantly lower commission and principal trading revenue comparedremained challenging, although economic conditions continued to the comparable period a year ago.improve.  U.S. corporate earnings remain strong,consumer confidence strengthened, as although  comparisons are less impressive than in preceding quarters. Short-terminvestors remained concerned about record high oil prices, higher inflation, rising interest rates, have been rising, higher inflation and the twin U.S. deficits (trade and budget). Iraq and unresolved global issues continue to put a lower U.S. dollar have reduced the attractiveness of the U.S. equity markets and increased risk premiumsdamper on investor confidence. Revenue improved in the fixed income market resulting in investors seeking out safer alternatives. Investor focus on record trade and budget deficits, rapidly rising oil prices and interest rate concerns led to lower commission revenue, lower proprietary trading profits, as well as reduced underwriting revenue in the firstsecond quarter of 2005 compared to the same period of 2004 in 2004. The Company noted that fees from itsthe Company’s  principal trading activities, underwriting activities and asset management businessbusiness. The Company’s expense burden in 2005 increased in the first quarter of 2005 compared to the comparablesame period of 2004 reflecting investordue primarily to higher interest costs, as well as the increased provision for legal and regulatory reserves.

The Company has experienced a material increase in fee-based products.expenses relating to regulatory matters as it responds to the requirements of its various industry regulators, the Sarbanes-Oxley Act, the Patriot Act, and the industry-wide mutual funds inquiry, all of which impose significant costs, as well as the expenditure of time and effort for the organization. These costs are anticipated to continue throughout the current year and into the future.

Interest rate changes also impact the Company’s fixed income businesses as well as its cost of borrowed funds. Interest rates were higher in the first three and six months ofended June 30, 2005 compared to the same periodperiods in 2004. Investor interest in fixed income securities is driven by attractiveness of published rates, the direction of rates and economic expectations. Volatility in bond prices also impacts opportunities for profits in fixed income proprietary trading. Management constantly monitors its exposure to interest rate fluctuations to mitigate risk of loss in volatile environments.

The Company’s focus continues to be the expansion and building of its business, through investment in experienced professionals throughout the Company is focused on growing its private client and asset management businesses through strategic additions of experienced financial consultantscontinued improvement in its existing branch system and employment of experienced money management personnel in its asset management business. In addition, the Company is committed to improvement of its technology capability to support client service and the expansion of its capital markets capabilities.platform.

Regulatory Environment

The brokerage business is subject to regulation by the SEC,United States Securities and Exchange Commission (“SEC”), the NYSE,New York Stock Exchange (“NYSE”), the NASDNational Association of Securities Dealers (“NASD”) and various state securities regulators. Events in recent years surrounding corporate accounting and other activities leading to investor losses resulted in the enactment of the Sarbanes-Oxley Act and have caused increased regulation of public companies. New regulations and new interpretations and enforcement of existing regulations are creating increased costs of compliance and increased investment in systems and procedures to comply with these more complex and onerous requirements. Increasingly, the various states are imposing their own regulations that make the uniformity of regulation a thing of the past, and make compliance more difficult and more expensive to monitor. Thismonitor.This regulatory environment has resulted in increased costs of compliance with rules and regulations,in particular, the impact of the rules and requirements that were created by the passage of the Patriot Act, and the anti-money laundering regulations (AML) that are related thereto. The Company’sTheCompany’s increased exposure to regulatory actions could potentially lead to the elimination of, or material changes to, certain lines of business. The expectation is that the increased costs of compliance in today’s regulatory environment are not temporary.

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Mutual Fund Inquiry

Since the third quarter of 2003, Oppenheimer has been responding to the SEC, the NY State Attorney General, the NYSE and other regulators as part of an industry-wide review of market timing, late

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trading and other activities involving mutual funds.  The Company has answered several document requests and subpoenas and there have been on-the-record interviews of Company personnel.  The inquiries have centered on Oppenheimer’s activities as a broker/dealer and as a clearing firm.

The Company has conducted its own investigation and is continuing to cooperate with the investigating entities.  

The Company believes that a few of its former financial advisors, working from a single branch office, have engaged in activities that are the subject of the SEC’sSEC's inquiry largely during the period before the Company acquired the U.S. Private Client Division of CIBC World Markets on January 3, 2003.  The former employees and two persons, who had a supervisory role with respect to such financial advisors, who continue to be employed by the Company, are also being investigated by and have received “Wells Notices” from the SEC; the Company has received no such Notice. There is no evidence that either the Company or its employees were engaged in “late trading”"late trading".  The Company continues to closely monitor its mutual fund activities and the activities of its employees.

Other Regulatory Matters

The Company has pending various regulatory matters with respect to its operations up to and including 2004. Most of these matters revolve around the period when the Company was transferring the business and client accounts of various acquisitions it hadhas made to a common systems platform between November 2001 and August 2004.2003. During that period of time, the Company absorbed approximately 35 branch offices and 1,000 financial advisors, and transitioned more than 250,000 client accounts from four separate and distinct companies, each of which utilized a different technology platform.  The Company’sCompany's business doubled during this period. As previously reported, certain of the Company’s operations were impacted beginning in June 2003 and the Company experienced client service issues, which were subsequently corrected. The new businesses undertaken by the Company and the effect on the Company’s operationsope rations for the period described above has resulted in investigations by the SEC, the NYSE, and the NASD.  The Company expects that one or more of these investigations will result in enforcement actions against the Company.

On May 3, 2005 the NASD filed a complaint against Oppenheimer for matters arising prior to 2004 with respect to the timeliness and accuracy of its municipal bond reporting, the adequacy of its email retention, the adequacy of its supervisory systems and procedures, as well as the timeliness of its response to certain NASD requests for information.  The Company believes that it has made and continues to make every effort to cooperate fully with the NASD and all other regulators. The Company worked diligently to provide tens of thousands of documents and all requested information and will continue to work with the NASD toward a speedy resolution of this matter.

Oppenheimer has recently been advised by the Staff of the NASD that the NASD has made a preliminary determination to recommend that an action be brought against the Chairman of Oppenheimer for alleged violations with respect to the Company’s filing of the NASD mutual fund breakpoint survey in 2003. Such action, if brought, could result in, among other things, monetary penalty, censure, suspension and/or other remedial sanctions. The Company believes that there is no

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basis for such action and that substantial defenses exist. The Company has filed a “Wells Submission” (a formal response to a request from a regulator that describes why an action should not be brought) with the NASD on behalf of the Company’s Chairman and CEO, Albert G. Lowenthal.  The Wells Submission sets forth the reasons why there is no basis for the NASD to bring claims that Mr. Lowenthal failed to properly oversee a response to an industry-wide NASD mutual fund breakpoint survey conducted in 2003 or that he permitted the filing of incorrect data in that response.

As stated in the Company’s Wells Submission, Oppenheimer had previously informed the NASD of certain limitations within its system relative to selecting out and generating data in the form requested by the NASD, and the NASD had stated that no extensions to file would be granted to any firm.  As a result, at the deadline, Oppenheimer submitted the data it then had available.  The NASD informed Oppenheimer within two days that its submission was deficient. As further stated in its Wells Submission, the assignment of overall responsibility for the response to the 2003 survey was properly delegated by Mr. Lowenthal to individuals who had the requisite experience and background to complete and file the survey with the NASD. This was an appropriate delegation of responsibilities as permitted under normal corporate organization, the securities laws and the NASD’s own rules. The Company and Mr.&nbs p;Lowenthal believe that there is no basis for a disciplinary action to be brought against Mr. Lowenthal because of these issues.

It should also be noted that Oppenheimer subsequently undertook on a voluntary basis to review all of its mutual fund trades for all classes for the period from 2000 to the present time. This review included a search for all trades that may have been eligible for a break-point (reduced commission) but did not receive them. Oppenheimer has begun refunding these amounts to both former and existing clients.

The Company and Mr. Lowenthal are cooperating and intend to continue to cooperate with all regulators and to negotiate a fair resolution of all outstanding regulatory issues which Oppenheimer faces.  However, if the NASD does file an action based on the submission of the data for the survey, the Company and Mr. Lowenthal intend to vigorously contest that action.  

Oppenheimer is also subject to various investigations by the NYSE that are likely to result in an enforcement action or actions with respect to its handling of the conversion of the client accounts of CIBC World Markets during May 2003, various Patriot Act and anti-money laundering issues, and issues related to activities by a few of its former financial advisors with respect to market timing or late trading of mutual funds as discussed above. Such actions, if brought, could result in, among other things, disgorgement, civil monetary penalties and/or other remedial sanctions.  The Company has been working with the NYSE toward a resolution of these matters.  

While the Company believes that it has substantial defenses to the claims and has had recent discussions with the NASD and the NYSE regarding possible resolution of these matters, the Company expects that one or more of these matters will result in enforcement actions against it.  As part of its ongoing business, the Company records reserves for legal expenses, judgments, fines and/or awards attributable to litigation and regulatory matters. In connection therewith, the Company has increased its legal reserves for the second quarter 2005.

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Business Continuity

The Company is committed to an on-going investment in its technology and communications infrastructure including extensive business continuity planning and investment. These costs are on-going and the Company believes that current and future costs will exceed historic levels due to business and regulatory requirements. The Company believes that internally-generated funds from operations are sufficient to finance its expenditure program.

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Results of Operations

Net profit for the three months ended March 31,endedJune 30, 2005 was $3,765,000$4,795,000 or $0.28$0.36 per share, a decreasean increase of 62%234% when compared to restated $9,804,000$1,437,000 or $0.74$0.11 per share in the same period of 2004. Revenue for the three months ended March 31,June 30, 2005 was $157,246,000, a decrease$165,929,000, an increase of 15%7% compared to revenue of $185,769,000$154,743,000 in the same period of 2004.  Expenses decreasedincreased by 11%3% in the three months ended March 31,June 30, 2005 compared to the same period of 2004, primarily reflecting increased interest expense and legal and regulatory expenses.

Net profit for the six months ended June 30, 2005 was $8,560,000 or $0.64 per share, a decrease of 24% in net profit when compared to $11,241,000 or $0.84 per share in the same period of 2004. Revenue for the six months ended June 30, 2005 was $323,175,000 compared to $340,511,000 for the same period in 2004, a decrease of 5%.  Expenses decreased by 4% in the six months ended June 30, 2005 compared to the same period of 2004, primarily reflecting decreased volume-related compensation expense, which varies with the level of commission revenue.

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The following table and discussion summarizes the changes in the major revenue and expense categories for the periods presented (in thousands of dollars):

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Revenue, other than interest

Commission income and, to a large extent, income from principal transactions depend on investor participation in the markets. In the three and six months ended March 31,June 30, 2005, commission revenue decreased by 12%4% and 8%, respectively, compared to the same periodperiods of 2004, primarily as a result of decreaseda decline in investor activity in the equity markets.markets in the periods being compared. Net revenue from principal transactions decreasedincreased by 45%11% in the three months ended March 31,June 30, 2005 and decreased by 23% in the six months ended June 30, 2005 compared to the comparable periodperiods of 2004 due to2004. The second quarter of 2005 included the lackimpact of volatilitygains taken during the quarter from investments and favorable results in the equity and fixed income marketstrading NASDAQ trading results declined from the same period last year. The six month period reflected the impact of greater pricing transparency and competitive factors, as well as lower market trading volumesvolume s generally in the first half of 2005 compared to 2004. In addition, the Company recorded a $700,000 write down in a private market investment to reflect its estimated fair value.first half of 2004. Investment banking revenues decreased 17%increased 47% and 9%, respectively, in the three and six months ended March 31,June 30, 2005 compared with the same periodperiods of 2004 due to the dropgrowth in this effort and an increase in new issue and secondary issuance in 2005 compared to 2004. Advisory fees increased by 7%6% for both the three and six months

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ended March 31,June 30, 2005 compared to the same periodperiods of 2004. The level of advisory fees earned in the first quarter of 2005 represents the second highest quarter in the Company’s history,2004, reflecting a client base that clients areis increasingly interested in fee-based services and products. Assets under management by the asset management group were $10.5$10.9 billion at March 31,June 30, 2005 compared to $9.86$9.6 billion at March 31,June 30, 2004. The Company received an arbitration award in the first three months of 2004 of $2.7 million (nil in 2005)., affecting the six month comparison.