UNITED STATES

SECURITIES ANDEXCHANGE COMMISSION

Washington, D. C.20549

**FORM 10-K/A**

**Amendment No. 1**

(Mark One) 

[x] ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Forthe fiscal year ended December 31, 2002****

OR

[ ] TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Forthe transition period from _________ to _________.

Commission file number 1-12043

**FAHNESTOCK VINERHOLDINGS INC.**

(Exact name ofregistrant as specified in its charter)

Ontario, Canada 98-0080034

(State or other jurisdiction of(I.R.S. Employer

incorporation or organization)Identification No.)

P.O. Box 2015, Suite 1110

20 Eglinton Avenue West

Toronto, Ontario, Canada M4R 1K8

(Address of principal executiveoffices) (Zip Code)

Registrant’s Telephonenumber, including area code: (416) 322-1515

Securities registered pursuant toSection 12(b) of the Act:

Name of each exchange

Title of each classonwhich registered

Class A non-voting shares New YorkStock Exchange

Securities registered pursuant toSection 12(g) of the Act:

Title of each class

Not Applicable

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes [x]No [ ]

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not becontained, to the best of the registrant’s knowledge, indefinitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K. [ X ]

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 ofthe Securities Exchange Act of 1934). Yes [ X ] No [ ]

The aggregate market value of thevoting stock of the Company held by non-affiliates of the Companycannot be calculated in a meaningful way because there is onlylimited trading in the class of voting stock of the Company. Theaggregate market value of the Class A non-voting shares held bynon-affiliates of the Company at March 17, 2003 was $218,988,000based on the closing price of the Class A non-voting shares onthe New York Stock Exchange as at March 17, 2003 of $22.50.The aggregate market value of the Class A non-voting shares of theCompany held by non-affiliates at June 30, 2002 was $214,339,000based on the closing price of the Class A non-voting shares on theNew York Stock Exchange as at June 28, 2002 of $22.00.

The number of shares of theCompany’s Class A non-voting shares and Class B votingshares (being the only classes of common stock of the Company),outstanding on March 17, 2003 was 12,665,851 and 99,680 shares,respectively.

_______________________________________________________________________

**Explanatory Note**

 

This Amendment No. 1 to Annual Report onForm 10-K for the fiscal year ended

December 31, 2002 of Fahnestock VinerHoldings Inc. (the "Company") is being

filed by the Company to update certaininformation contained in PART III --

Item 12. Security Ownership of CertainBeneficial Owners and Management

thereof.

 

TABLE OF CONTENTS 

| Item        Number |                                                                                                     | Page   |
|--------------------|----------------------------------------------------------------------------------------------------------|--------|
| PART 1             |                                                                                                     |   |
| 1.                 | Business                                                                                                 | 3      |
| 2.                 | Properties                                                                                               | 15     |
| 3.                 | Legal        Proceedings                                                                                 | 15     |
| 4.                 | Submission        of Matters to a Vote of Security Holders                                               | 15     |
|               |                                                                                                     |   |
| PART II            |                                                                                                     |   |
| 5.                 | Market        for the Registrant’s Common Equity and Related        Stockholder Matters             | 17     |
| 6.                 | Selected        Financial Data                                                                           | 19     |
| 7.                 | Management’s        Discussion and Analysis of Financial Condition and        Results of Operations | 20     |
| 7a.                | Quantitative        and Qualitative Disclosures About Market Risk                                        | 29     |
| 8.                 | Financial        Statements and Supplementary Data                                                       | 31     |
| 9.                 | Changes        in and Disagreements with Accountants and Financial        Disclosure                     | 31     |
|               |                                                                                                     |   |
| PART III           |                                                                                                     |   |
| 10.                | Directors        and Executive Officers of the Registrant                                                | 32     |
| 11.                | Executive        Compensation                                                                            | 34     |
| 12.                | Security        Ownership of Certain Beneficial Owners and Management                                    | 41     |
| 13.                | Certain        Relationships and Related Transactions                                                    | 43     |
| 14.                | Controls        and Procedures                                                                           | 43     |
|               |                                                                                                     |   |
| PART IV            |                                                                                                     |   |
| 15.                | Exhibits,        Financial Statement Schedules, and Reports on Form 8-K                                  | 44     |
|               |                                                                                                     |   |
|               | Signatures                                                                                               | 45     |

PART I

**Item 1. BUSINESS**

Fahnestock Viner Holdings Inc., formerlycalled E.A. Viner Holdings Limited and immediately prior to thatcalled Goldale Investments Limited (the "Company"),maintains its registered office and principal place of businessat 20 Eglinton Avenue West, Suite 1110, Toronto, Ontario M4R 1K8and its telephone number is (416) 322-1515.

The Company was originally incorporatedunder the laws of British Columbia. Pursuant to its Certificateand Articles of Continuation effective October 12, 1977, theCompany's legal existence was continued under the BusinessCorporation Act (Ontario) as if it had been incorporated as anOntario corporation.

The Company is a holding company andcarries on no active business. It owns, directly or throughintermediate subsidiaries, Fahnestock & Co. Inc. (formerlyEdward A. Viner & Co., Inc.), a New York corporation("Fahnestock"); Freedom Investments, Inc., a Delawarecorporation ("Freedom"); Hudson Capital Advisors Inc.,a New York corporation ("Hudson Capital"); EvanstonFinancial, Inc., a New York corporation ("Evanston");since September 17, 2001, Josephthal & Co. Inc., a New Yorkcorporation ("Josephthal"); since November 9, 2001,Prime Charter, Ltd., a Delaware corporation ("Prime")and since January 17, 2002, Fahnestock Canada Inc., an Ontariocorporation ("FCI"). Fahnestock and Freedom aresometimes collectively referred to as the "OperatingSubsidiaries". Through the Operating Subsidiaries, theCompany is engaged in the securities brokerage and tradingbusiness and offers investment advisory and other relatedfinancial services. Fahnestock is the principal OperatingSubsidiary. Fahnestock is engaged in the securities brokeragebusiness in the United States, operates in Toronto, Canada as anInternational Dealer and, through the agency of local licensedbroker-dealers, operates offices in Buenos Aires, Argentina andCaracas, Venezuela. Hudson Capital was engaged in the investmentadvisory business in the United States until July 1999. Itsbusiness is now part of Fahnestock Asset Management, a divisionof Fahnestock. The business formerly conducted by Josephthal andPrime is now conducted by Fahnestock. The private client businessacquired from CIBC World Markets Inc. in January 2003 is beingconducted by Fahnestock under the name Oppenheimer & Co., adivision of Fahnestock. The Company operates a discount brokeragebusiness through Freedom. Freedom also services independentfinancial consultants.

In September 2001, through a wholly-ownedsubsidiary, Fahnestock acquired 91.6% of the outstanding commonstock of Josephthal Group, Inc ("Josephthal Group"). InOctober 2001 substantially all of the remaining outstanding stockof Josephthal Group was acquired. The purchase price was $1 plusthe assumption of liabilities of $23,885,000. Josephthal Groupindirectly owns 100% of Josephthal, formerly a private NewYork-based broker-dealer founded in 1910 with approximately 265financial consultants in 25 offices across the United States atthe time of closing. The acquisition was accounted for by thepurchase method. The accounts of Josephthal were converted toFahnestock’s system in November 2001. Fahnestock acted as aclearing agent for Josephthal until December 31, 2001 when theaccounts of Josephthal became accounts of Fahnestock. Josephthalmade application to withdraw as a broker dealer and suchapplication was approved. Since January 1, 2002 its business hasbeen conducted by Fahnestock.

In November 2001, through a wholly-ownedsubsidiary, Fahnestock acquired 100% of the outstanding commonstock of Grand Charter Group Incorporated ("GrandCharter") for a cash consideration of $2,892,000. GrandCharter owns 100% of Prime, formerly a twelve-year-old fullservice securities firm with approximately 110 financialconsultants operating from offices in New York, New York and BocaRaton, Florida. The acquisition was accounted for by the purchasemethod. Effective January 1, 2002, Prime’s accounts becameFahnestock accounts. Prime ceased to be a broker-dealer effectiveJanuary 22, 2002 and since January 1, 2002 its business has beenconducted by Fahnestock. The business generated by the twobranches associated with the Prime acquisition was clearedpursuant to an agreement with Bank of New York until November2002 when its client accounts were converted to Fahnestock’sclearing platform.

In March 2002, through Freedom, the Companypurchased the business of BUYandHOLD Securities Corporation andaffiliates for cash consideration of $2,297,000. BUYandHOLD is anon-line brokerage business headquartered in Edison, NJ. Thecombination of the Freedom and BUYandHOLD technology platformsprovides clients with a comprehensive and diversified suite ofonline financial services.****BUYandHOLD operates as adivision of Freedom. The acquisition was accounted for by thepurchase method. 

On January 3, 2003, the Company acquiredthe U.S. Private Client Division of CIBC World Markets and hasagreed to acquire at a later date the U.S. Asset ManagementDivision of CIBC World Markets for a total consideration ofapproximately $241 million, of which approximately $13 millionwas paid in cash at closing from cash on hand and the balance waspaid from the proceeds of the issuance of debt instruments. Thebusinesses will be operated as the Oppenheimer Division ofFahnestock and adds approximately 620 account executives in 18branches located in the major financial centers of the UnitedStates. Client assets of the Private Client Division areapproximately $30 billion. Assets under management in the AssetManagement Division are approximately $8.5 billion. Theacquisition is being accounted for by the purchase method. Thistransaction more than doubles the Company’s retail exposureand asset base.

In January 2003, the Company receivedmonetary damages plus interest in the amount of $21,750,000,pursuant to an award by a National Association of SecuritiesDealers Dispute Resolution panel against another broker-dealer ina raiding case involving the sales force of First of MichiganCorporation, a company acquired by Fahnestock in July 1997.During the fourth quarter of 1997, approximately 20% of the"pre-raid" staff of financial consultants were hiredaway in a raid. These proceeds, which were received in January2003, will be included in the Company’s results for thefirst quarter of 2003.

At December 31, 2002, Fahnestock employed1,102 full-time registered representatives and approximately 652other employees in trading, research, investment banking,investment advisory services, public finance and supportpositions in the United States for Fahnestock and Freedom, for atotal of approximately 1,754 full-time employees. Fahnestock andFreedom are broker-dealers registered with the Securities andExchange Commission (the "SEC") and in all otherjurisdictions where their respective businesses requireregistration. Fahnestock, in addition to its United Statesoperations, has three additional offices: it conducts business inToronto, Ontario as an International Dealer and in Caracas andBuenos Aires through local broker-dealers who are licensed underthe laws of Venezuela and Argentina, respectively. FCI, awholly-owned subsidiary of the Company, was registered as aninvestment dealer with the Investment Dealers Association ofCanada ("IDA) on January 17, 2002. The Company is in theprocess of selling FCI and expects to close this transaction onor about March 31, 2003, subject to the approval of the IDA.

At February 28, 2003, Fahnestock andFreedom employed 1,760 full-time registered representatives andapproximately 1,123 other employees in trading, research,investment banking, investment advisory services, public financeand support positions in the United States for Fahnestock andFreedom, for a total of approximately 2,883 full-time employees. 

The Operating Subsidiaries are collectivelyengaged in a broad range of activities in the securitiesbrokerage business, including retail securities brokerage,institutional sales, bond trading and investment banking -offering both corporate and public finance services,underwriting, research, market making and investment advisory andasset management services. No material part of the Company'srevenues, taken as a whole, are derived from a single customer orgroup of customers.

Fahnestock is a member of the New YorkStock Exchange, Inc. ("NYSE"), the National Associationof Securities Dealers, Inc. ("NASD"), the AmericanStock Exchange, Inc. ("AMEX"), the Chicago StockExchange Incorporated ("CSE"), the Chicago BoardOptions Exchange, Inc. ("CBOE"), the Philadelphia StockExchange, Inc. ("PHLX"), the New York Futures Exchange,Inc. ("NYFE"), the National Futures Association("NFA") and the Securities Industry Association("SIA"). In addition, Fahnestock has satisfied therequirements of the Municipal Securities Rulemaking Board("MSRB") for effecting customer transactions inmunicipal securities. Freedom is a member of the NASD. EffectiveJanuary 1, 2002 all of the business of Josephthal and Prime isbeing conducted by Fahnestock. 

Fahnestock, which acts as a clearing brokerand omnibus broker for Freedom, is also a member of theSecurities Investor Protection Corporation ("SIPC"),which provides, in the event of the liquidation of abroker-dealer, protection for customers' accounts (including thecustomer accounts of other securities firms when it acts on theirbehalf as a clearing broker) held by the firm of up to $500,000for each customer, subject to a limitation of $100,000 for claimsfor cash balances. SIPC is funded through assessments onregistered broker-dealers, which may not exceed 1% of abroker-dealer's gross revenues (as defined); SIPC assessmentswere a flat fee of $150 in 2002, 2001 and 2000. In addition,Fahnestock has purchased protection from Aetna Casualty andSurety Company of an additional $24,500,000 per customer. 

The Company’s internet address is www.fahnestock.com. The Company makes available free of charge throughits website its annual report on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and all amendments tothose reports as soon as reasonably practicable after suchmaterial is electronically filed with or furnished to the SEC.

 

*The following table sets forth theamount and percentage of the Company's revenues from eachprincipal source for each of the following years ended December31.*

|                                              | 2002     | %      | 2001     | %      | 2000     | %      |
|---------------------------------------------------|----------|--------|----------|--------|----------|--------|
| (Dollars        in thousands, except percentages) |
|                                              |     |   |     |   |     |   |
| Commissions                                       | $135,747 | 48%    | $122,272 | 47%    | $128,915 | 41%    |
| Principal        transactions, net                | 58,227   | 21%    | 56,374   | 22%    | 84,420   | 27%    |
| Interest                                          | 27,622   | 10%    | 34,309   | 13%    | 63,696   | 20%    |
| Underwriting        fees                          | 22,760   | 8%     | 10,955   | 4%     | 9,314    | 3%     |
| Advisory        fees                              | 26,365   | 9%     | 24,504   | 9%     | 21,764   | 7%     |
| Other                                             | 12,612   | 4%     | 12,847   | 5%     | 8,390    | 2%     |
|                                              |     |   |     |   |     |   |
| Total        revenues                             | $283,333 | 100%   | $261,261 | 100%   | $316,499 | 100%   |

The Company derives most of its revenuesfrom the operations of its principal subsidiary, Fahnestock.Although maintained as separate entities, the operations of theCompany's brokerage subsidiaries are closely related becauseFahnestock acts as clearing broker and omnibus in transactionsinitiated by Freedom. Except as expressly otherwise stated, thediscussion below pertains to the operations of Fahnestock.

COMMISSIONS

A significant portion of Fahnestock'srevenues is derived from commissions from retail and, to a lesserextent, institutional customers on brokerage transactions inexchange-listed and over-the-counter corporate equity and debtsecurities. Brokerage commissions are charged on both exchangeand over-the-counter transactions in accordance with a schedule,which Fahnestock has formulated. Often, discounts are granted tocustomers, generally on large trades or to active customers.Fahnestock also provides a range of services in other financialproducts to retail and institutional customers, including thepurchase and sale of options on the CBOE, the AMEX and otherstock exchanges as well as futures on indexes listed on variousexchanges.

Commission business relies heavily on theservices of financial consultants with good sales productionrecords. Competition among securities firms for such personnel isintense. Retail clients' accounts are serviced by retailfinancial consultants (excluding the institutional financialconsultants referred to below) in Fahnestock's offices.Fahnestock's institutional clients, which include mutual funds,banks, insurance companies, and pension and profit-sharing funds,are serviced by institutional brokers. (For a discussion ofregulatory matters, see "Regulation".) Theinstitutional department is supported by the equity researchdepartment which provides coverage of a number of commercial andindustrial as well as emerging growth companies and specialsituation investments. 

Securities Clearance Activities

Fahnestock provides a full range ofsecurities clearance services to two non-affiliated securitiesfirms on a fully-disclosed basis. In addition to commissions andservice charges, Fahnestock derives substantial interest revenuefrom its securities clearing activities. See "Interest -Securities Borrowed And Loaned." Fahnestock provides marginfinancing for the clients of the securities firms for which itclears, with the securities firms guaranteeing the accounts oftheir clients. Fahnestock also extends margin credit directly toits correspondent firms to the extent that such firms holdsecurities positions for their own account. Because Fahnestockmust rely on the guarantees and general credit of itscorrespondent firms, Fahnestock may be exposed to significantrisks of loss if any of its correspondents or its correspondents'customers are unable to meet their respective financialcommitments. See "Risk Management."

The correspondent clearing procedure forfully-disclosed accounts involves a series of steps: thecorrespondent broker opens an account for its customer and takesthe customer's order for the purchase and sale of securities. Theorder is then executed by the correspondent firm or Fahnestock.Fahnestock completes the transaction by taking possession of thecustomer's cash, if securities are being purchased, orcertificates, if securities are being sold, borrowing securitiesif securities are being sold, lending the customer any amountsrequired if the purchase is being made on margin, and makingdelivery to the broker for the other party to the transaction.Fahnestock or the correspondent sends the customer a writtenconfirmation containing the details of each transaction the dayafter it is executed and Fahnestock sends each customer a monthlystatement for the entire account. The execution, clearance,settlement, receipt, delivery and record-keeping functionsinvolved in the clearing process require the performance of aseries of complex steps, many of which are accomplished with dataprocessing equipment.

Floor Brokerage

In addition to transactions executed byFahnestock for itself or its own customers, Fahnestock acts asagent for the accounts of other brokers. With its memberships onthe various exchanges, Fahnestock attempts to utilize excessexecution capacity by executing orders for other brokerage firms.Fahnestock bills such other firms at prevailing rates which areset on a basis competitive with rates charged by other brokeragefirms performing similar functions.

PRINCIPAL TRANASACTIONS

Market-Making

Fahnestock acts as both principal and agentin the execution of its customers' orders in the over-the-countermarket. Fahnestock buys, sells and maintains an inventory of asecurity in order to "make a market" in that security.(To "make a market" in a security is to maintain firmbid and offer prices by standing ready to buy or sell round lotsat publicly quoted prices. In order to make a market it isnecessary to commit capital to buy, sell and maintain aninventory of a security.) As of December 31, 2002, Fahnestockmade approximately 700 dealer markets in the common stock orother equity securities of corporate issuers. In executingcustomer orders for over-the-counter securities in which it doesnot make a market, Fahnestock generally charges a commission andacts as agent or will act as principal by marking the security upor down in a riskless transaction, working with another firmwhich is a market-maker acting as principal. However, when thebuy or sell order is in a security in which Fahnestock makes amarket, Fahnestock normally acts as principal and purchases fromor sells to its customers at a price which is approximately equalto the current inter-dealer market price plus or minus a mark-upor mark-down. The stocks in which Fahnestock makes a market alsoinclude those of issuers which are followed by Fahnestock'sresearch department.

Trading profits or losses depend on (i) theskills of those employees engaged in market-making activities,(ii) the capital allocated to holding positions in securities and(iii) the general trend of prices in the securities markets.Trading as principal requires the commitment of capital andcreates an opportunity for profits or an exposure to risk of lossdue to market fluctuations. Fahnestock takes both long and shortpositions in those securities in which it makes a market.

The size of its securities positions on anyone day may not be representative of Fahnestock's exposure on anyother day because securities positions vary substantially basedupon economic and market conditions, allocations of capital,underwriting commitments and trading volume. Also, the aggregatevalue of inventories of stocks which Fahnestock may carry islimited by the Net Capital Rule. See "Net CapitalRequirements" and Item 7, "Management's Discussion andAnalysis of Financial Condition and Results of Operations -Liquidity and Capital Resources."

To a lesser extent, Fahnestock also buysand sells municipal bonds, Ginnie Maes, Unit Investment Trustsand U.S. Treasury Securities as well as other fixed incomesecurities for its own account in the secondary market andmaintains an inventory of municipal bonds and other securitiesand resells bonds from its inventory to dealers as well as toinstitutional and retail customers.

Other Trading Activities

Fahnestock holds positions in its tradingaccounts in over-the-counter securities and in exchange-listedsecurities in which it does not make a market and may engage fromtime to time in other types of principal transactions insecurities. Fahnestock has several trading departments including:a convertible bond department, a risk arbitrage department, acorporate bond dealer department, a municipal bond department, agovernment/mortgage backed securities department, a departmentthat underwrites and trades U.S. government agency issues,taxable corporate bonds, UITs and a department that trades highyield securities (commonly referred to as "junkbonds"). These departments continually purchase and sellsecurities and make markets in order to make a profit on theinter-dealer spread. Although Fahnestock from time to time holdsan inventory of securities, more typically, it seeks to matchcustomer buy and sell orders. Fahnestock does not carry"bridge loans" (i.e., short-term loans made inanticipation of intermediate-term or long-term financing). Nosubstantial losses relating to Fahnestock's risk arbitrageactivities have been incurred.

Investment Income

Dividends and interest earned on securitiesheld in inventory, cash and cash equivalents and cash andsecurities held in segregated accounts are treated as investmentincome.

Principal transactions with customers aswell as market-making and other trading and investmentactivities, accounted for approximately 21%, 22% and 27%,respectively, of the Company’s total revenues for the fiscalyears ended December 31, 2002, 2001 and 2000, respectively.

 

 

Risk Management

Fahnestock's principal transactions andbrokerage activities expose it to credit and market risks. WhenFahnestock advances funds or securities to a counterparty in aprincipal transaction or to a customer in a brokered transaction,it is subject to the risk that the counterparty or customer willnot repay such advances. If the market price of the securitiespurchased or loaned has declined or increased, respectively,Fahnestock may be unable to recover some or all of the value ofthe amount advanced. A similar risk is also present where acustomer is unable to respond to a margin call and the marketprice of the collateral has dropped. In addition, Fahnestock'ssecurities positions are subject to fluctuations in market valueand liquidity.

Fahnestock monitors market risks throughdaily profit and loss statements and position reports. Eachtrading department adheres to internal position limits determinedby senior management and regularly reviews the age andcomposition of its proprietary accounts. Positions and profitsand losses for each trading department are reported to seniormanagement on a daily basis. Fahnestock may from time to timeattempt to reduce market risk through the utilization of variousderivative securities as a hedge to market exposure. 

In its market-making activities, Fahnestockmust provide liquidity in the equities for which it makesmarkets. As a result of this event, Fahnestock has riskcontainment policies in place which limit position size andmonitor transactions on a minute-to-minute basis.

In addition to monitoring thecredit-worthiness of its customers, Fahnestock imposes moreconservative margin requirements than those of the NYSE.Generally, Fahnestock limits customer loans to an amount notgreater than 65% of the value of the securities (or 50% if thesecurities in the account are concentrated in a limited number ofissues). Particular attention and more restrictive requirementsare placed on more highly volatile securities traded in theNASDAQ market. In comparison, the NYSE permits loans of up to 75%of the value of the securities in a customer's account.

For further discussion of risk management,see Item 7a, Quantitative and Qualitative Disclosures aboutMarket Risk.

INTEREST

Fahnestock derives net interest income fromthe financing of customer margin loans and its securities lendingactivities. See "Customer Financing" and"Securities Borrowed and Loaned."

Customer Financing

Customers' securities transactions areeffected on either a cash or margin basis. In margintransactions, Fahnestock extends credit to the customer,collateralized by securities and/or cash in the customer'saccount, for a portion of the purchase price, and receives incomefrom interest charged on such extensions of credit. The customeris charged for such margin financing at interest rates based uponthe brokers’ call rate (the prevailing interest rate chargedby banks on collateralized loans to broker-dealers), to which isadded an additional amount of up to 2%.

In each of the last five years, financingactivities conducted on behalf of its customers have providedFahnestock with a substantial source of revenue. A substantialportion of these financing activities are undertaken inconnection with Fahnestock's securities clearance business andits own retail business. See "Commissions." The amountof Fahnestock's interest revenue is affected by the volume ofcustomer and securities borrowings and by prevailing interestrates.

The primary source of funds to financecustomers' margin account borrowings are collateralized anduncollateralized bank borrowings, funds generated by lendingsecurities on a cash collateral basis in excess of the amount ofsecurities borrowed and free credit balances in customers'accounts. Free credit balances in customers' accounts, to theextent not required to be segregated pursuant to SEC rules, maybe used in the conduct of Fahnestock's business, including theextension of margin credit. Subject to applicable regulations,interest is paid by Fahnestock on most, but not all, of such freecredit balances awaiting reinvestment by customers. To the extentthat the use of free credit balances reduces borrowings, interestexpense is reduced.

Margin lending by Fahnestock is subject tothe margin rules of the Board of Governors of the Federal ReserveSystem, NYSE margin requirements and Fahnestock's internalpolicies. By permitting customers to purchase on margin,Fahnestock takes the risk of a market decline that would reducethe value of its collateral below the customer's indebtednessbefore the collateral could be sold. Under applicable NYSE rules,in the event of a decline in the market value of the securitiesin a margin account, Fahnestock is obligated to require thecustomer to deposit additional securities or cash in the accountso that at all times the loan to the customer for the purchase ofmarginable securities is no greater than 75% of the market valueof such securities or cash in the account.

Securities Borrowed and Loaned

In connection with both its trading andbrokerage activities, Fahnestock borrows securities to covershort sales, to complete transactions in which customers havefailed to deliver securities by the required settlement date, andto lend securities to other brokers and dealers for similarpurposes. When borrowing securities, Fahnestock is required todeposit cash or other collateral with the lender and receives arebate (based on the amount of cash deposited) or pays a feecalculated to yield a negotiated rate of return.

When lending securities, Fahnestockreceives cash or similar collateral and generally pays a rebate(based on the amount of cash deposited) to the other party to thetransaction. Transactions in which stocks are borrowed or loanedare generally executed pursuant to written agreements withcounterparties which require that the securities borrowed bemarked to market on a daily basis and that excess collateral berefunded or that additional collateral be furnished in the eventof changes in the market value of the securities. Marginadjustments are usually made on a daily basis through thefacilities of various clearing houses.

INVESTMENT BANKING BUSINESS

Fahnestock manages the underwriting of bothcorporate and municipal securities, including the securitizationof corporate and other obligations, and participates as anunderwriter in the syndicates of issues managed by othersecurities firms. The corporate finance department is responsiblefor originating and developing transactions which includeunderwriting, mergers and acquisitions, private placements,valuations, financial advisory work and other investment bankingmatters.

The management of and participation inpublic offerings involve significant risks. An underwriter mayincur losses if it is unable to resell at a profit the securitiesit has purchased. Under federal and state securities and otherlaws, an underwriter is subject to substantial liability formisstatements or omissions that are judged to be material inprospectuses and other communications related to underwriting.

Underwriting commitments cause a chargeagainst net capital. Consequently, the aggregate amount ofunderwriting commitments at any one time may be limited by theamount of net capital available. The Company derived 8%, 4% and3% of its revenues from underwriting in 2002, 2001 and 2000,respectively. See "Net Capital Requirements" and Item7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations - Liquidity and CapitalResources."

INVESTMENT ADVISORY BUSINESS

Fahnestock (through its Fahnestock AssetManagement division) provides investment advisory services for afee to its clients. These equity and debt management service feesare based on the value of the portfolio under management. Inaddition to the management fee, transactions executed for suchaccounts may be effected at standard rates of commission or atdiscounts from Fahnestock's customary commission schedule.

At December 31, 2002 Fahnestock hadapproximately $869 million under management. The agreements underwhich the portfolios are managed on behalf of institutions andother investors generally provide for termination by either partyat any time.

ADMINISTRATION AND OPERATIONS

Administration and operations personnel areresponsible for the processing of securities transactions; thereceipt, identification and delivery of funds and securities; themaintenance of internal financial controls; accounting functions;custody of customers' securities; the handling of margin accountsfor Fahnestock and its correspondents; and general officeservices. Fahnestock employs approximately200personsin itsadministration and operations departments at its head office andapproximately 55 persons in its administration and operationsdepartments in Detroit.

There is considerable fluctuation duringany year and from year to year in the volume of transactionsFahnestock must process. Fahnestock records transactions andposts its books on a daily basis. Operations personnel monitorday-to-day operations to assure compliance with applicable laws,rules and regulations. Failure to keep current and accurate booksand records can render Fahnestock liable for disciplinary actionby governmental and self-regulatory organizations.

Fahnestock executes its own and certain ofits correspondents' securities transactions on all United Statesexchanges of which it is a member and in the over-the-countermarket. Fahnestock clears all of its securities transactions(i.e., it delivers securities that it has sold, receivessecurities that it has purchased and transfers related funds)through its own facilities and through memberships in variousclearing corporations and custodian banks.

Fahnestock believes that its internalcontrols and safeguards are adequate, although fraud andmisconduct by customers and employees and the possibility oftheft of securities are risks inherent in the securitiesindustry. As required by the NYSE and certain other authorities,Fahnestock carries a broker's blanket insurance bond coveringloss or theft of securities, forgery of checks and drafts,embezzlement, fraud and misplacement of securities. This bondprovides coverage of up to an aggregate of $25,000,000 with aself-insurance retention of $250,000.****

 

COMPETITION

Fahnestock encounters intense competitionin all aspects of the securities business and competes directlywith other securities firms, a significant number of which havesubstantially greater resources and offer a wider range offinancial services. In addition, there has recently beenincreasing competition from other sources, such as commercialbanks, insurance companies and certain major corporations thathave entered the securities industry through acquisition, andfrom other entities. Additionally, foreign-based securities firmsand commercial banks regularly offer their services in performinga variety of investment banking functions including: merger andacquisition advice, leveraged buy-out financing, merchantbanking, and bridge financing, all in direct competition withU.S. broker-dealers. These developments have led to the creationof a greater number of integrated financial services firms thatmay be able to compete more effectively than Fahnestock forinvestment funds by offering a greater range of financialservices.

Fahnestock believes that the principalfactors affecting competition in the securities industry are thequality and ability of professional personnel and relative pricesof services and products offered. Fahnestock and its competitorsemploy advertising and direct solicitation of potential customersin order to increase business and furnish investment researchpublications in an effort to retain existing and attractpotential clients. Many of Fahnestock's competitors engage inthese programs more extensively than does Fahnestock.

There is substantial commission discountingby broker-dealers competing for institutional and retailbrokerage business. Recently, full service firms have begunoffering on-line trading services to their clients at substantialdiscounts to their regular pricing. Fahnestock intends to competein this area, but it is likely to reduce profitability pertransaction, unless offset by higher transaction volume. Thecontinuation of such discounting and an increase in the incidencethereof could adversely affect Fahnestock. However, an increasein the use of discount brokerages could be beneficial to Freedom.

REGULATION

The securities industry in the UnitedStates is subject to extensive regulation under both federal andstate laws. The SEC is the federal agency charged withadministration of the federal securities laws. Much of theregulation of broker-dealers has been delegated toself-regulatory organizations such as the NASD, nationalsecurities exchanges such as the NYSE and the National FuturesAssociation. The NYSE has been designated Fahnestock’sprimary regulator with respect to securities activities and theNational Futures Association has been designatedFahnestock’s primary regulator with respect to commoditiesactivities. The CBOE has been designated Fahnestock's primaryregulator with respect to options trading activities. The NASDhas been designated Freedom’s primary regulator with respectto securities activities. These self-regulatory organizationsadopt rules (subject to approval by the SEC or the CommoditiesFutures Trading Commission ("CFTC"), as the case maybe) governing the industry and conduct periodic examinations ofFahnestock's and Freedom's operations. Securities firms are alsosubject to regulation by state securities commissions in thestates in which they do business. Fahnestock is registered as abroker-dealer in 50 states and Puerto Rico. Fahnestock is alsoregistered as an International Broker-Dealer in Canada. FCI, asubsidiary of the Company, filed an application for registrationas an investment dealer with the Investment Dealers Associationof Canada, which was approved on January 17, 2002. The InvestmentDealers Association of Canada has been designated FCI’sprimary regulator with respect to securities activities.

The regulations to which broker-dealers aresubject cover all aspects of the securities business, includingsales methods, trade practices among broker-dealers, the use andsafekeeping of customers' funds and securities, capital structureof securities firms, record keeping and the conduct of directors,officers and employees. The SEC has adopted rules requiringunderwriters to ensure that municipal securities issuers providecurrent financial information and imposing limitations onpolitical contributions to municipal issuers by brokers, dealersand other municipal finance professionals. Additionallegislation, changes in rules promulgated by the SEC, the CFTCand by self-regulatory organizations, or changes in theinterpretation or enforcement of existing laws and rules maydirectly affect the method of operation and profitability ofbroker-dealers. The SEC, self-regulatory organizations (includingthe NYSE) and state securities commissions may conductadministrative proceedings which can result in censure, fine,issuance of cease and desist orders or suspension or expulsion ofa broker-dealer, its officers, or employees. The principalpurpose of regulating and disciplining broker-dealers is toprotect customers and the securities markets rather than toprotect creditors and shareholders of broker-dealers.

Fahnestock is also subject to regulation bythe SEC and under certain state laws in connection with itsbusiness as an investment advisor and in connection with itsresearch department activities. 

Margin lending by Fahnestock is subject tothe margin rules of the Board of Governors of the Federal ReserveSystem and the NYSE. Under such rules, Fahnestock is limited inthe amount it may lend in connection with certain purchases ofsecurities and is also required to impose certain maintenancerequirements on the amount of securities and cash held in marginaccounts. In addition, Fahnestock may (and currently does) imposemore restrictive margin requirements than required by such rules.See "Customer Financing."

NET CAPITAL REQUIREMENTS

As registered broker-dealers and memberfirms of the NYSE (Fahnestock) or the NASD (Freedom), theOperating Subsidiaries are subject to certain net capitalrequirements pursuant to Rule 15c3-1 (the "Net CapitalRule") promulgated under the Securities Exchange Act of 1934(the "Exchange Act"). The Net Capital Rule, whichspecifies minimum net capital requirements for registered brokersand dealers, is designed to measure the general financialintegrity and liquidity of a broker-dealer and requires that atleast a minimum part of its assets be kept in relatively liquidform.****

Fahnestock elects to compute net capitalunder an alternative method of calculation permitted by the NetCapital Rule. (Freedom computes net capital under the basicformula as provided by the Net Capital Rule.) Under thisalternative method, Fahnestock is required to maintain a minimum"net capital", as defined in the Net Capital Rule, atleast equal to 2% of the amount of its "aggregate debititems" computed in accordance with the Formula forDetermination of Reserve Requirements for Brokers and Dealers(Exhibit A to Rule 15c3-3 under the Exchange Act) or $250,000,whichever is greater. "Aggregate debit items" areassets that have as their source transactions with customers,primarily margin loans. Failure to maintain the required netcapital may subject a firm to suspension or expulsion by theNYSE, the SEC and other regulatory bodies and ultimately mayrequire its liquidation. The Net Capital Rule also prohibitspayments of dividends, redemption of stock and the prepayment ofsubordinated indebtedness if net capital thereafter would be lessthan 5% of aggregate debit items (or 7% of the funds required tobe segregated pursuant to the Commodity Exchange Act and theregulations thereunder, if greater) and payments in respect ofprincipal of subordinated indebtedness if net capital thereafterwould be less than 5% of aggregate debit items (or 6% of thefunds required to be segregated pursuant to the CommodityExchange Act and the regulations thereunder, if greater). The NetCapital Rule also provides that the total outstanding principalamounts of a broker-dealer's indebtedness under certainsubordination agreements (the proceeds of which are included inits net capital) may not exceed 70% of the sum of the outstandingprincipal amounts of all subordinated indebtedness included innet capital, par or stated value of capital stock, paid incapital in excess of par, retained earnings and other capitalaccounts for a period in excess of 90 days.

Net capital is essentially defined in theNet Capital Rule as net worth (assets minus liabilities), plusqualifying subordinated borrowings minus certain mandatorydeductions that result from excluding assets that are not readilyconvertible into cash and deductions for certain operatingcharges. The Net Capital Rule values certain other assets, suchas a firm's positions in securities, conservatively. Among thesedeductions are adjustments (called "haircuts") in themarket value of securities to reflect the possibility of a marketdecline prior to disposition. 

Compliance with the Net Capital Rule couldlimit those operations of the brokerage subsidiaries of theCompany that require the intensive use of capital, such asunderwriting and trading activities and the financing of customeraccount balances, and also could restrict the Company's abilityto withdraw capital from its brokerage subsidiaries, which inturn could limit the Company's ability to pay dividends, repaydebt and redeem or purchase shares of its outstanding capitalstock. Under the Net Capital Rule broker-dealers are required tomaintain certain records and provide the SEC with quarterlyreports with respect to, among other things, significantmovements of capital, including transfers to a holding companyparent or other affiliate. The SEC may in certain circumstancesrestrict the Company's brokerage subsidiaries' ability towithdraw excess net capital and transfer it to the Company or toother of the Operating Subsidiaries.

 

 

**Item 2. PROPERTIES**

The Company maintains offices at 20Eglinton Avenue West, Toronto, Ontario, Canada for generaladministrative activities. Most day-to-day management functionsare conducted at the executive offices of Fahnestock at 125 BroadStreet, New York, New York. This office also serves as the basefor most of Fahnestock's research, operations and trading,investment banking and investment advisory services, though otheroffices also have employees who work in these areas. Generally,the offices outside of 125 Broad Street, New York serve as basesfor sales representatives who process trades and provide otherbrokerage services in co-operation with Fahnestock's New Yorkoffice using the data processing facilities located there.Freedom conducts its business from its offices located in Edison,NJ. Management believes that its present facilities are adequatefor the purposes for which they are used and have adequatecapacity to provide for presently contemplated future uses. 

The Company and its subsidiaries own noreal property, but at December 31, 2002, occupied office spacetotalling approximately 589,000 square feet in 89 locations understandard commercial terms expiring between 2002 and 2013.Currently, the Company occupies office space totalingapproximately 977,000 square feet in 105 locations. If any leasesare not renewed, the Company believes it could obtain comparablespace elsewhere on commercially reasonable rental terms.

**Item 3. LEGAL PROCEEDINGS**

The Operating Subsidiaries are involved incertain litigation arising in the ordinary course of business.Management believes, based upon discussion with legal counsel,that the outcome of this litigation will not have a materialeffect on the Company’s financial position. The materialityof legal matters to the Company’s future operating resultsdepends on the level of future results of operations as well asthe timing and ultimate outcome of such legal matters.

**Item 4. SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

The Class B voting shares (the "ClassB Shares"), the Company's only class of voting securities,are not registered under the Exchange Act and are not required tobe registered. The Class B Shares are owned by fewer than 500shareholders of record. Consequently, the Company is not requiredunder Section 14 of the Exchange Act to furnish proxy solicitingmaterial or an information statement to holders of the Class BShares. However, the Company is required under applicableCanadian securities laws to provide proxy soliciting material,including a management proxy circular, to the holders of itsClass B Shares.

Pursuant to the Company's Articles ofIncorporation, holders of Class A non-voting shares (the"Class A Shares"), although not entitled to votethereat, are entitled to receive notices of shareholders'meetings and to receive all informational documents required bylaw or otherwise to be provided to holders of Class B Shares. Inaddition, holders of Class A Shares are entitled to attend andspeak at all meetings of shareholders, except class

meetings not including the Class A Shares.

In the event of either a "take-overbid" or an "issuer bid" (as those terms aredefined in the Securities Act (Ontario)) being made for the ClassB Shares and no corresponding offer being made to purchase ClassA Shares, the holders of Class A Shares would have no right underthe Articles of Incorporation of the Company or under anyapplicable statute to require that a similar offer be made tothem to purchase their Class A Shares.

No matters were submitted to the Company'sshareholders during the fourth quarter of the Company's 2002fiscal year.

At the annual and special meeting ofshareholders to be held on May 12, 2003, the Company will put aresolution with respect to the E.A. Viner International Co.Convertible Debenture before both the Class A non-voting andClass B shareholders.

Pursuant to an Asset Purchase Agreementdated as of December 9, 2002 between the Company, itswholly-owned subsidiary Viner Finance Inc., CIBC World MarketsCorp. and CIBC, effective January 3, 2003 the Company, throughViner Finance Inc. acquired the assets and business of the U.S.Oppenheimer Private Client Division of CIBC World Markets Corp.To fund a portion of the purchase price, the Company’swholly-owned subsidiary, E.A. Viner International Co., issued toCIBC (i) a $69,980,828 principal amount Variable RateExchangeable Debenture Due 2013 (the "First ExchangeableDebenture") and (ii) a $90,841,572 principal amountConvertible Debenture Due 2006 (the Interim Debenture").Subject to shareholder approval, as described below, the InterimDebenture is convertible into a $90,841,572 principal amountVariable Rate Exchangeable Debenture Due 2013 (the "SecondExchangeable Debenture"). The First Exchangeable Debentureis exchangeable for 3,016,415 Class A Shares at the rate of$23.20 per share (the closing price on the NYSE for the Class AShares on December 6, 2002). The Second Exchangeable Debenture(when issued) will be exchangeable for 3,915,585 Class A Shares,also at the rate of $23.20 per share. The First and SecondExchangeable Debentures provide for an adjustment of up to anadditional issuance of 3% of the Class A Shares issuable in theevent that the Debentures are exchanged, the holders of theDebentures exercise their rights to have the Class A Shares, forwhich the Debentures are exchanged, sold and realize a price ofless than $23.20 per share. If both Debentures are fullyconverted CIBC would own approximately 35% of the thenoutstanding Class A Shares.

In accordance with the requirements of theToronto Stock Exchange, the Interim Debenture may not beconverted into the Second Exchangeable Debenture without theapproval of the Class A Shareholders and Class B Shareholdersvoting together. Provided shareholders approve the conversion,the Convertible Debenture will be automatically converted.

Accordingly, the Class A Shareholders andClass B Shareholders are being asked to consider, and if deemedadvisable, pass such resolution.

In order to pass, the resolution must beapproved by a simple majority of the votes cast by the Class Aand Class B Shareholders voting together.

 

**PART II**

**Item 5. MARKET FOR THE REGISTRANT'SCOMMON EQUITY AND RELATED**

**STOCKHOLDER MATTERS**

The Company's Class A Shares are listed andtraded on The New York Stock Exchange (trading symbol"FVH") and on The Toronto Stock Exchange (tradingsymbol "FHV.A"). The Class B Shares are not traded onany stock exchange in Canada or the United States and, as aconsequence, there is only limited trading in the Class B shares.The Company does not presently contemplate listing the Class BShares in the United States on any national or regional stockexchange or on NASDAQ.

The following tables set forth the high andlow sales prices of the Class A Shares on The Toronto StockExchange and on The New York Stock Exchange. Prices provided arein Canadian dollars or U.S. dollars as indicated and are based ondata provided by The Toronto Stock Exchange and The New YorkStock Exchange.

| Class A Shares: | TSE                | NYSE           |
|-----------------|--------------------|----------------|
|            |               | HIGH           | LOW | HIGH | LOW |
|            |               | (Cdn. Dollars) | (U.S. dollars) |
|            |               |           |   |   |   |
| 2002            | 1st        Quarter | $46.00         | $39.40 | $28.88 | $24.85 |
|            | 2nd        Quarter | $40.56         | $32.65 | $25.70 | $21.26 |
|            | 3rd        Quarter | $35.00         | $31.55 | $23.15 | $20.00 |
|            | 4th        Quarter | $43.86         | $31.45 | $28.45 | $19.77 |
|            |               |           |   |   |   |
| 2001            | 1st        Quarter | $43.90         | $33.25 | $27.60 | $22.00 |
|            | 2nd        Quarter | $45.50         | $37.50 | $29.25 | $24.75 |
|            | 3rd        Quarter | $44.50         | $38.00 | $28.40 | $24.30 |
|            | 4th        Quarter | $45.30         | $36.94 | $28.35 | $23.15 |

The following table sets forth informationabout the *shareholders of the Company* as at December 31,2002 as set forth in the records of the Company's transfer agentand registrar: 

**Class A Shares:**

| Shareholders        of record having addresses in: | Number of shares | Percentage | Number of shareholders |
|----------------------------------------------------|------------------|------------|------------------------|
| Canada                                             | 5,141,484        | 41%        | 176                    |
| United        States                               | 7,255,491        | 59%        | 176                    |
| Other                                              | 32               | -          | 2                      |
|                                               |             |       |                   |
| Total        issued and outstanding                | 12,397,007       | 100%       | 354                    |

 

 

**Class B Shares**

| Shareholders        of record having addresses in: | Number of shares | Percentage | Number of shareholders |
|----------------------------------------------------|------------------|------------|------------------------|
| Canada        (1)                                  | 98,037           | 98%        | 122                    |
| United        States                               | 1,635            | 2%         | 66                     |
| Other                                              | 8                | -          | 2                      |
|                                               |             |       |                   |
| Total        issued and outstanding                | 99,680           | 100%       | 190                    |

(1) The Company has been informed that50,490 Class B shares held by Phase II Financial Limited, anOntario corporation, are beneficially owned by A.G. Lowenthal,Chairman, CEO and a Director of the Company, a U.S. citizen andresident. See Item 12, "Security Ownership of CertainBeneficial Owners and Management".

*Dividends*

The following table sets forth thefrequency and amount of any cash dividends declared on theCompany’s Class A and Class B Shares for the fiscal yearsended December 31, 2002 and 2001.

| Type      | Declaration        date | Record        date       | Payment        date      | Amount        per share |
|-----------|-------------------------|--------------------------|--------------------------|-------------------------|
| Quarterly | January        25, 2001 | February        9, 2001  | February        23, 2001 | $0.09                   |
| Quarterly | April 19,        2001   | May 4,        2001       | May 18,        2001      | $0.09                   |
| Quarterly | July 19,        2001    | August 3,        2001    | August        17, 2001   | $0.09                   |
| Quarterly | October        18, 2001 | November        2, 2001  | November        16, 2001 | $0.09                   |
| Quarterly | January        24, 2002 | February        8, 2002  | February        22, 2002 | $0.09                   |
| Quarterly | April 19,        2002   | May 3,        2002       | May 17,        2002      | $0.09                   |
| Quarterly | July 18,        2002    | August 2,        2002    | August        16, 2002   | $0.09                   |
| Quarterly | October        18, 2002 | November        8, 2002  | November        22, 2002 | $0.09                   |
| Quarterly | January        24, 2003 | February        14, 2003 | February        28, 2003 | $0.09                   |

Future dividend policy will depend upon theearnings and financial condition of the Operating Subsidiaries,the Company's need for funds and other factors. Dividends may bepaid to holders of Class A Shares and Class B Shares (paripassu), as and when declared by the Company's Board of Directors,from funds legally available therefor.

CERTAIN TAX MATTERS

The following paragraphs summarize certainUnited States and Canadian federal income tax considerations inconnection with the receipt of dividends paid on the Class A andClass B Shares of the Company. These tax considerations arestated in brief and general terms and are based on United Statesand Canadian law currently in effect. There are other potentiallysignificant United States and Canadian federal income taxconsiderations and state, provincial or local income taxconsiderations with respect to ownership and disposition of theClass A and Class B Shares which are not discussed herein. Thetax considerations relative to ownership and disposition of theClass A and Class B Shares may vary from taxpayer to taxpayerdepending on the taxpayer's particular status. Accordingly,prospective purchasers should consult with their tax advisorsregarding tax considerations, which may apply to the particularsituation.

United States Federal Income TaxConsiderations

Dividends on Class A and Class B Sharespaid to citizens or residents of the U.S. or to U.S. corporations(including any Canadian federal income tax withheld) will besubject to U.S. federal income taxation as ordinary income to theextent paid out of the Company’s earnings and profits,determined under U.S. tax principles. Such dividends will not beeligible for the deduction for dividends received by corporations(unless such corporation owns by vote and value at least 10% ofthe stock of the Company, in which case a portion of suchdividend may be eligible for such exclusion).

U.S. corporations, U.S. citizens and U.S.residents will generally be entitled, subject to certainlimitations, to a credit against their U.S. federal income taxfor Canadian federal income taxes withheld from such dividends.Taxpayers may claim a deduction for such taxes if they do notelect to claim such tax credit. No deduction for foreign taxesmay be claimed by an individual taxpayer who does not itemizedeductions. Because the application of the foreign tax creditdepends upon the particular circumstances of each shareholder,shareholders are urged to consult their own tax advisors in thisregard. 

Canadian Federal Income Tax Considerations

Dividends paid on Class A and Class BShares held by non-residents of Canada will generally be subjectto Canadian withholding tax. This withholding tax is levied atthe basic rate of 25%, although this rate may be reduced by theterms of any applicable tax treaty. The Canada - U.S. tax treatyprovides that the withholding rate on dividends paid to U.S.residents on Class A and Class B Shares is generally 15%.

Normal Course Issuer Bid

On July 5, 2002 the Company announced thatcommencing July 9, 2002 it intended to purchase up to 620,700Class A Shares by way of a Normal Course Issuer Bid through thefacilities of The Toronto Stock Exchange and/or The New YorkStock Exchange, representing approximately 5% of the outstandingClass A Shares. In fiscal 2002, through a Normal Course IssuerBid, which expired July 4, 2002 and through the current NormalCourse Issuer Bid, the Company purchased 151,400 Class A Sharesat an average cost of $21.72 per share, of which 86,100 Class Anon-voting shares were purchased pursuant to the Normal CourseIssuer Bid that expired on July 4, 2002 and 65,300 Class Anon-voting shares were purchased pursuant to the current NormalCourse Issuer Bid which expires July 8, 2003. Any sharespurchased by the Company pursuant to the Normal Course Issuer Bidwill be cancelled. The Company may, at its option, apply toextend the program for an additional year.

**Item 6. SELECTED FINANCIAL DATA**

The following table presents selectedfinancial information derived from the audited consolidatedfinancial statements of the Company for the five years endedDecember 31, 2002. The selected financial information should beread in conjunction with, and is qualified in its entirety byreference to, the Consolidated Financial Statements and notesthereto included elsewhere in this report. In 2002, the Companypurchased the business of BUYandHOLD Securities Corporation. The2002 amounts include the assets and liabilities and operatingresults of BUYandHOLD as of and subsequent to the period afterMarch 12, 2002. In 2001, the Company purchased Josephthal andPrime. The 2001 amounts include the assets and liabilities andoperating results of Josephthal and Prime as of and subsequent tothe period after September 17, 2001 and November 9, 2001,respectively. See also Item 1, "Business" and Item 7,"Management’s Discussion and Analysis of FinancialCondition and Results of Operations".

|                                                                     | 2002       | 2001       | 2000       | 1999       | 1998       |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| (In thousands of U.S.        dollars except per share and share amounts) |
| Revenue                                                                  | $283,333   | $261,261   | $316,499   | $279,111   | $232,781   |
| Profit before extraordinary item                                         | $9,321     | $19,150    | $40,901    | $27,390    | $12,447    |
| Net profit                                                               | $9,321     | $19,150    | $40,901    | $27,390    | $12,447    |
| Profit before extraordinary item per share        (1)                    | $0.75      | $1.55      | $3.38      | $2.19      | $0.99      |
| Net profit per share (1)                                                 |       |       |       |       |       |
| - basic                                                                  | $0.75      | $1.55      | $3.38      | $2.19      | $0.99      |
| - diluted                                                                | $0.73      | $1.50      | $3.29      | $2.17      | $0.96      |
| Total assets                                                             | $1,031,226 | $710,275   | $697,482   | $766,528   | $666,763   |
| Total current liabilities                                                | $783,590   | $468,580   | $475,682   | $579,141   | $500,410   |
| Subordinated indebtedness,                                               |       |       |       |       |       |
| including current portion                                                | -          | -          | -          | $30        | $30        |
| Cash dividends per Class A                                               |       |       |       |       |       |
| Share and Class B share                                                  | $0.36      | $0.36      | $0.31      | $0.28      | $0.28      |
| Shareholders' equity                                                     | $247,636   | $241,695   | $221,800   | $187,388   | $166,323   |
| Book value per share (1)                                                 | $19.82     | $19.43     | $18.34     | $15.30     | $13.48     |
| Number of shares of capital stock        outstanding                     | 12,496,687 | 12,436,765 | 12,090,649 | 12,247,249 | 12,340,949 |
|                                                                     |       |       |       |       |       |
|                                                                     |       |       |       |       |       |

> 
The Class A Shares and Class B        Shares are combined because they are of equal rank for        purposes of dividends and in the event of a distribution        of assets upon liquidation, dissolution or winding up. 

 

**Item 7. MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The Company’s financial statementshave been prepared in accordance with accounting principlesgenerally accepted in the United States of America. The followingdiscussion should be read in conjunction with the consolidatedfinancial statements and notes thereto which appear elsewhere inthis annual report. 

Critical Accounting PoliciesThe Company’s accounting policies are essential tounderstanding and interpreting the financial results reported inthe consolidated financial statements. The significant accountingpolicies used in the preparation of the Company’sconsolidated financial statements are summarized in note 1 tothose statements. Certain of those policies are considered to beparticularly important to the presentation of the Company’sfinancial results because they require management to makedifficult, complex or subjective judgments, often as a result ofmatters that are inherently uncertain. The following is adiscussion of these policies.

Valuation of Securities and Other AssetsSubstantially all financial instruments are reflected in theconsolidated financial statements at fair value or amountsthat approximate fair value, these include cash equivalents;deposits with clearing organizations; securities owned;and securities sold but not yet purchased.  Whereavailable, the Company uses prices from independentsources such as listed market prices, or broker or dealerprice quotations. In addition, even where the value ofa security is derived from an independent marketprice or broker or dealer quote, certain assumptions may berequired to determine the fair value.For instance, the Company generally assumes thatthe size of positions in securities that the Companyholds would not be largeenough to affect the quoted price of thesecurities if the Company were to sell them, and that anysuch sale would happen in an orderly manner. However, theseassumptions may be incorrect and the actual value realized upondisposition could be different from the current carrying value. 

Intangible Assets and GoodwillGoodwill represents the excess cost of a business acquisitionover the fair value of the net assets acquired. SFASNo. 142, "Goodwill and Other IntangibleAssets," provides that goodwill is no longer amortizedand the value of identifiable intangible assets must be amortizedover their useful lives, unless the asset is determined to havean indefinite useful life. Intangible assetsconsist of goodwill related to theacquisitions of First of Michigan Corporation, Prime Charter Ltd.and Josephthal & Co. Inc. This goodwill was allocated to theprivate client and capital markets reporting unit pursuantto SFAS No. 142. The Company has engaged a nationalaccounting firm to perform an independent valuation of assetsacquired and liabilities assumed with respect to the acquisitionof the U.S. Private Client and Asset Management Divisions of CIBCWorld Markets in 2003. These amounts will involve significantestimates and will be reported in the Company’s Form 10-Qfor the quarterly period ending March 31, 2003.The Company reviews its goodwill in order to determine whetherits value is impaired on atleast an annual basis.Goodwill is impaired when the carrying amount ofthe reporting unit exceeds the implied fair value of thereporting unit.  In estimating the fair value ofthe reporting unit, the Company uses valuation techniquesbased on multiples of revenues, earnings, book value anddiscounted cash flows similarto models employed in analyzing the purchaseprice of an acquisition target. If the value of the goodwillis impaired, the difference between the value of thegoodwill reflected on the financial statements and its currentfair value is recognized as an expense in the period in which theimpairment occurs. 

ReservesThe Company records reserves related tolegal proceedings in  "other payables andaccrued expenses". The determination of the amountsof these reserves requires significant judgment on thepart of management. Management considers manyfactors including, but not limited to: the amount of theclaim; the amount of the loss in the client's account;the basis and validity of the claim; the possibility ofwrong doing on the part of an employee of the Company;previous results in similar cases; and legal precedents andcase law as well as the timing of the resolution of such matters.Each legal proceeding is reviewed with counsel in each accountingperiod and the reserve is adjusted as deemed appropriate bymanagement. Any change in the reserve amount is recordedas a charge to results in that period. The assumptionsof management in determining the estimates of reserves may beincorrect and the actual disposition of a legal proceeding couldbe greater or less than the reserve amount.The Company also records reserves orallowances for doubtful accounts related toreceivables from clients and financial consultants. Client loans are collateralized by securities;however, if there is a decline in the value of thecollateral and the Company cannot obtain additional collateral orcollect on the loan, a reserve is established.  The Companyalso makes loans or pays advances to financialconsultants. Reserves are established on thesereceivables if the financial consultant is no longerassociated with the Company and the receivable has not beenpromptly repaid or if it is determined that it is probablethe amount will not be collected.

The Company also estimates taxes payableand records income tax reserves. These reserves are based onhistoric experience and may not reflect the ultimate liability.The Company monitors and adjusts these reserves as necessary.

 

Business Environment

Fahnestock Viner Holdings Inc. is a holdingcompany whose principal subsidiary is Fahnestock & Co. Inc.("Fahnestock"). Fahnestock provides securitiesbrokerage, investment banking, trust and asset managementservices to its clients from 89 offices across the U.S.A. and anoffice in Toronto, Canada and associated offices in Caracas,Venezuela and Buenos Aires, Argentina. Fahnestock is licensed tooffer brokerage and other financial services in all 50 States.Client assets entrusted to the Company as at December 31, 2002totalled approximately $17.8 billion. The Company providesinvestment advisory services through Fahnestock Asset Management,operating as a division of Fahnestock. Client assets undermanagement by the asset management groups totaled $869 million atDecember 31, 2002. Fahnestock also engages in proprietary tradingof securities. In addition, the Company operates a discountbrokerage business based in Edison, NJ, through FreedomInvestments, Inc.

The securities industry is highlycompetitive and sensitive to many factors and is directlyaffected by general economic and market conditions, including thevolatility and price level of securities markets; the volume,size, and timing of securities transactions; the demand forinvestment banking services and changes in interest rates, all ofwhich have an impact on commissions, trading and investmentincome as well as on liquidity. In addition, a significantportion of the Company's expenses are relatively fixed and do notvary with market activity. Consequently, substantial fluctuationscan occur in the Company's revenues and net income from period toperiod due to these and other factors.

In addition, the Company faces competitionfrom commercial banks and other sources as these institutionsoffer more investment banking and financial servicestraditionally only provided by securities firms. The effect ofthe consolidation of the securities industry of recent yearsmeans that a variety of financial services companies have mergedto offer a broader spectrum of investment products and suchcompetitors have substantially greater financial resources thanthe Company. The Company is also experiencing increasingregulation in the securities industry, particularly affecting theover-the-counter markets, making compliance with regulations moredifficult and costly. At present, the Company is unable topredict the extent of changes, or the effect on the Company'sbusiness.

Outlook

The Company's long-term plan is to continueto expand existing offices by hiring experienced professionals,thus maximizing the potential of each office and the developmentof existing trading, investment banking, investment advisory andother activities. Equally important is the search for viableacquisition candidates. As opportunities are presented, it is thelong term intention of the Company to pursue growth byacquisition where a comfortable match can be found in terms ofcorporate goals and personnel and at a price that would providethe Company's shareholders with incremental value. In the nearterm, the Company will not be seeking additional acquisitions,but will focus its attention on the integration of recentacquisitions, including the significant acquisition in 2003 ofthe U.S. private client and asset management businesses of CIBCWorld Markets.

Results of Operations

Results for the year reflect continueddifficult conditions in the investment environment. Domestic andworld events, the aftermath of terrorism, revelations ofcorporate misconduct and greed, accounting problems, generalfailures of our nation’s corporate structures to operate inthe best interests of their many constituencies, and finally, adeteriorating international situation with impending war on Iraqand the potential of nuclear confrontation on the Koreanpeninsula substantially impacted capital markets and theCompany’s results.

However, the impact of difficult businessconditions provided the opportunity for expansion of theCompany’s business. As a result, the Company followed twoacquisitions in the latter part of 2001 with the acquisition ofthe business of BUYandHold Securities in March 2002. 

On March 12, 2002, the Company acquired,through Freedom Investments, Inc., the business of BUYandHOLDSecurities Corporation. BUYandHOLD is an online retail brokeragefirm headquartered in Edison, NJ and provides its approximately90,000clients with a dollar-based investing platform. Theacquisition added important proprietary technology, as well asrevenues.

On January 3, 2003 the Company acquired theU.S. private client division and agreed at a later date toacquire the U.S. asset management business of CIBC World Markets.This business, currently operating as the Oppenheimer & Co.division of Fahnestock, will affect the results of futureperiods, with the addition of approximately 620 financialconsultants in 18 branch offices and client assets ofapproximately $30 billion. This acquisition more than doubles theCompany’s retail exposure and asset base and will beincluded in the Company’s 2003 results.

The following table and discussionsummarizes the changes in the major revenue and expensecategories for the past two years (in thousands of dollars).

|                               | Period to Period Change |
|------------------------------------|-------------------------|
|                               | Increase (Decrease)     |
|                               | 2002 versus 2001        | 2001 versus 2000 |
|                               | Amount                  | Percentage | Amount | Percentage |
|                               |                    |   |   |   |
| Revenues        -                  |                    |   |   |   |
| Commissions                        | $13,475                 | +11% | $(6,643) | -5% |
| Principal        transactions, net | 1,853                   | +3% | (28,046) | -33% |
| Interest                           | (6,687)                 | -19% | (29,387) | -46% |
| Underwriting        fees           | 11,805                  | +108% | 1,641 | +18% |
| Advisory        fees               | 1,861                   | +8% | 2,740 | +13% |
| Other                              | (235)                   | -2% | 4,457 | +53% |
| Total        revenues              | 22,072                  | +8% | (55,238) | -17% |

| Expenses        -                  |     |   |      |   |
|------------------------------------|----------|--------|-----------|--------|
| Compensation                       | 20,972   | +14%   | (6,043)   | -4%    |
| Clearing        and exchanges fees | 3,595    | +60%   | (1,193)   | -17%   |
| Communications                     | 8,446    | +36%   | 308       | 1%     |
| Occupancy        costs             | 7,217    | +46%   | 3,226     | 26%    |
| Interest                           | (5,692)  | -40%   | (19,051)  | -58%   |
| Other                              | 6,229    | +29%   | 7,615     | 55%    |
| Total        expenses              | 40,767   | +18%   | (15,138)  | -6%    |
|                               |     |   |      |   |
| Profit        before taxes         | (18,695) | -59%   | (40,100)  | -56%   |
| Income        taxes                | (7,092)  | -57%   | (18,349)  | -60%   |
| Net        profit                  | (11,603) | -61%   | $(21,751) | -53%   |

 

Fiscal 2002 compared to Fiscal 2001

Results for fiscal 2002 reflected continueddifficult conditions in the investment environment. The combinedimpact of rising unemployment levels, adverse import/export flowsand slowing business conditions has overcome the normal impact ofrecord low interest rates and the prospect of lower tax rates toproduce low market volumes and overall declining prices.

Revenues in fiscal 2002 increased comparedto fiscal 2001 by 8% as a result of the acquisitions ofJosephthal and Prime Charter in the latter part of 2001 andBUYandHOLD in March 2002. Net profit declined by 61% in fiscal2002 compared to fiscal 2001 as a result of poor marketconditions and substantial expenses associated with these recentacquisitions, including integration costs of combiningfacilities, severance payments associated with combiningpersonnel and most significantly, costs of litigation for claimswhich preceded the Company’s acquisitions of these entities.

Total revenues for 2002 were $283,333,000an increase of 8% over $261,261,000 in 2001. Commission income(income realized in securities transactions for which the Companyacts as agent) increased 11% to $135,747,000 in 2002 from$122,272,000 in 2001. This increase was the result of theadditional business generated by Josephthal, Prime Charter andBUYandHOLD, which more than offset generally lower commissionlevels in the weaker markets of 2002 compared to 2001. Revenuesfrom principal transactions (revenues from transactions in whichthe Company acts as principal in the secondary market trading ofover-the-counter equities and municipal, corporate and governmentbonds) increased by 3% to $58,227,000 in 2002 from $56,374,000 in2001 due to stronger activity in the trading of fixed incomesecurities as a result of lower interest rates and higher bondprices in 2002 compared to 2001. The Company has reduced thenumber of securities in which it makes markets. It may increaseor decrease this number as conditions warrant. Underwriting feesincreased by 108% to $22,760,000 in 2002 from $10,955,000 in 2001related to increased participation in the issuance of closed-endfunds and debt securities. Demand for these products increased in2002 as investors sought new investment vehicles. Advisory feesincreased by 8% to $26,365,000 in 2002 from $24,504,000 in 2001primarily as a result of the acquisition of the business ofBUYandHOLD in March 2002. BUYandHOLD provides a fee-basedinvesting approach to retail investors.

Interest income in 2002 was $27,622,000, adecrease of 19% from $34,309,000 in 2001. Interest expense was$8,379,000, a decrease of 40% from $14,071,000 in 2001. Thisrepresents a decrease of 5% in net interest revenue (interestrevenue less interest expense) in 2002 compared to 2001, whichcan be attributed to a decrease in average customer marginbalances and lower interest rates in 2002 compared to 2001. 

Expenses in 2002 totalled $270,416,000, anincrease of 18% compared to $229,649,000 in 2001. The increase inexpenses can be attributed to the acquisitions of Josephthal andPrime Charter in the latter part of 2001 and the business ofBUYandHOLD in March 2002. Compensation and related costs in 2002were $169,810,000, an increase of 14% from $148,838,000 in 2001.Compensation expense has volume-related components and increaseswith increases in commission business conducted in 2002 comparedto 2001, as well as increased retention and severance costs and ageneral increase in staff levels in both acquired branch officesand in head office departments which were required to handle thebusiness volume of the larger entity. Clearing and exchange feesin 2002 were $9,607,000, an increase of 60% from $6,012,000 in2001. These expenses increased in 2002 compared with 2001 withincreased volume and with the increased size of the sales force.In addition, until November, 2002, the business generated fromthe former Prime Charter branches was being cleared by a thirdparty as was the business of BUYandHOLD until June, 2002. Thecost of third party clearing is higher than the cost of clearingtrades in-house. Communications expenses in 2002 were$32,066,000, an increase of 36% over $23,620,000 in 2001reflecting additional costs of a larger branch system, after theacquisition of Josephthal and Prime Charter. Occupancy costs in2002 were $22,908,000, an increase of 46% compared to $15,691,000in 2001 as a result of increasing the size of the organizationwith the acquisition of Josephthal and Prime Charter in 2001. Theincrease in communications, technology and occupancy expensesreflects the additional costs associated with connecting andhousing 51% more financial consultants in 15 more branch officesin 2002 compared to September 16, 2001, before the acquisitionsof Josephthal and Prime Charter. Occupancy costs were alsosignificantly impacted by costs associated with underutilizedspace that will be utilized in 2003 and future years by postyear-end acquisitions. Other expenses were $27,646,000, anincrease of 29% over $21,417,000 in 2001. The increase relatesprimarily to increased depreciation and amortization expenselevels because of the larger organization, as well as toincreased bad debt expense and costs of litigation.

Fiscal 2001 compared to Fiscal 2000

The Company experienced a decline in itsrevenues and net profit in 2001 compared to 2000. Revenues infiscal 2001 decreased by 17% and net profit decreased by 53%compared to fiscal 2000. The effect of the acquisition ofJosephthal and Prime Charter added to revenues and decreased netprofit in the third and fourth quarters of 2001. 

Total revenues for 2001 were $261,261,000 adecrease of 17% from $316,499,000 in 2000. Commission income(income realized in securities transactions for which the Companyacts as agent) decreased 5% to $122,272,000 in 2001 from$128,915,000 in 2000. This decrease, while partially offset inthe fourth quarter by the additional business generated byJosephthal and Prime Charter, is attributable to the extremelyvolatile trading environment encountered throughout 2001 comparedto 2000 and most particularly post September 11, 2001. Revenuesfrom principal transactions (revenues from transactions in whichthe Company acts as principal in the secondary market trading ofover-the-counter equities and municipal, corporate and governmentbonds) decreased by 33% to $56,374,000 in 2001 from $84,420,000in 2000 due to significantly reduced activity, and reducedspreads (the difference between bid and ask prices) in the NASDAQmarkets, as a result of the decimalization of the NASDAQ marketseffective in the third quarter of 2001. The Company has reducedthe number of securities in which it makes markets. It mayincrease or decrease this number as conditions warrant.Underwriting fees in 2001 were $10,955,000, an increase of 18%compared to $9,314,000 in 2000 as a result of closing severallarge merger and acquisition deals in 2001. Advisory fees in 2001were $24,504,000, an increase of 13% compared to $21,764,000 in2000 as a result of increased fees from increased balances inmoney market funds.

Interest income was $34,309,000, a decreaseof 46% over $63,696,000 in 2000. Interest expense was$14,071,000, a decrease of 58% from $33,122,000 in 2000. Thisrepresents a decrease of 34% in net interest revenue (interestrevenue less interest expense) in 2001 compared to 2000, whichcan be attributed to a decrease in average customer marginbalances and lower interest rates in 2001 compared to 2000. Thelower gross interest revenue and interest expense are alsoattributable to discontinuing a matched book business, which theCompany operated between the fall of 2000 and the spring of 2001.

Expenses totalled $229,649,000, a decreaseof 6% compared to $244,787,000 in 2000. The decrease is due, inpart, to lower variable expenses which decrease as the volume ofbusiness decreases, such as compensation and related expenses andclearing and exchange fees, and in part to the decrease ininterest expense. Compensation and related costs were$148,838,000, a decrease of 4% from $154,881,000 in 2000.Clearing and exchange fees were $6,012,000, a decrease of 17%from $7,205,000in 2000. Communications expenses were $23,620,000,an increase of 1% over $23,312,000 in 2000 reflecting additionalcosts in the last quarter of 2001, after the acquisition ofJosephthal and Prime Charter. Occupancy costs were $15,691,000,an increase of 26% compared to $12,465,000 as a result ofincreasing the size of the organization with the acquisition ofJosephthal and Prime Charter in 2001. The number of branchlocations post-acquisitions is 92 compared to 70 prior to theacquisitions, an increase of approximately 31%. Other expenseswere $21,417,000, an increase of 55% over $13,802,000 in 2001.The differences relate to higher provision for bad debts in 2001and higher error account charges compared to 2000. 

Liquidity and Capital Resources

The increase in the Company’s assetsin 2002 compared to 2001 is primarily attributable to increasedreceivables from brokers and clearing organizations as a resultof increased stock borrow/stock loan balances. Customer relatedreceivables and securities inventory are highly liquid andrepresent a substantial percentage of total assets. The principalsources of financing for the Company's assets are stockholders'equity, customer free credit balances, proceeds from securitieslending, bank loans and other payables. The Company historicallyhas not utilized long-term financing. Cash generated fromoperations, increased earnings, proceeds from stock purchased byemployee stock plans, and cash proceeds upon the exercise ofemployee stock options supplemented bank borrowings during thepast three years. At December 31, 2002, Fahnestock had bank linesof credit and call loan arrangements with outstanding borrowingsthereunder of $16,200,000. At December 31, 2002 Fahnestock hadavailable collateralized and uncollateralized letters of creditof $34,500,000.

The Company paid cash dividends to itsshareholders totalling $4,509,000, during 2002, from internallygenerated cash.

During 2002, the Company purchased a totalof 151,400 of its Class A non-voting shares at an average cost of$21.72 per share through the facilities of the New York StockExchange by way of a Normal Course Issuer Bid, using internallygenerated cash. The Company has expressed an intention topurchase up to an additional 555,400 of its shares from time totime until July 8, 2003 from internally generated funds.

Because of the Company's strong financialcondition, size and earnings history, management believesadequate sources of credit would be available to finance highertrading volumes, branch expansion, and major capitalexpenditures, as needed. See factors affecting"forward-looking statements".

On January 3, 2003 the Company acquired theU.S. Private Client and Asset Management businesses of CIBC WorldMarkets for an aggregate purchase price of approximately $241million, of which approximately $13 million was paid in cash atclosing from cash on hand and the balance was paid from theproceeds of the issuance of debt instruments. A description ofthese instruments has been provided in note 16 to theconsolidated financial statements. This acquisition more thandoubles the Company’s business. The interest due on thedebentures, the principal of which amounts to approximately $161million in aggregate, is payable semi-annually and will befinanced from internally-generated funds. The principle paymentson the zero coupon promissory notes will also be financed frominternally-generated funds. The Company believes that thenecessary internally-generated funds will be available to servicethis debt from normal operations which now include the acquiredbusinesses.

In connection with the above-notedacquisition of the Private Client business from CIBC WorldMarkets, the Company has arranged a credit facility in the amountof $50 million with CIBC. In January 2003 the Company borrowed$25 million under this facility and expects to borrow the balancein July 2003. The borrowings are being used to finance brokernotes and are repayable, together with interest at the CIBC U.S.base rate plus 2%, over five years or earlier if any broker notesbecome due earlier. 

Contractual and Contingent Obligations

The Company has contractual obligations tomake future payments in connection with non-cancelable leaseobligations, certain retirement plans and debt assumed upon theacquisition of Josephthal. Additional disclosure relating theCompany’s commitments appears in note 11 to the consolidatedfinancial statements.

The following table sets forth thesecontractual and contingent commitments as at December 31, 2002.Commitments entered into in connection with the acquisition fromCIBC World Markets in 2003 have not been included in this table.

Contractual Obligations

(In millions of dollars)

|                                          | 2003   | 2004   | 2005   | 2006   | Thereafter | Total  |
|-----------------------------------------------|--------|--------|--------|--------|------------|--------|
| Minimum        rentals                        | $15    | $12    | $10    | $9     | $38        | $84    |
| Supplemental        Executive Retirement Plan | 1      | -      | -      | -      | -          | 1      |
| Assumed        Josephthal notes               | 4      | 4      | -      | -      | 1          | 9      |
|                                          |   |   |   |   |       |   |
| Total                                         | $20    | $16    | $10    | $9     | $39        | $94    |

 

Subsequent Event

In January 2003 the Company receivedmonetary damages plus interest in the amount of approximately $22million pursuant to an award by a National Association ofSecurities Dealers Dispute Resolution Panel against anotherbroker-dealer along with ten individual branch managers, in araiding case involving the sales force of First of MichiganCorporation, a company acquired by Fahnestock in July 1997. Theseproceeds, which have been received, will be included in theCompany’s results for the first quarter of 2003.

Inflation

Because the assets of the Company'sbrokerage subsidiaries are highly liquid, and because securitiesinventories are carried at current market values, the impact ofinflation generally is reflected in the financial statements.However, the rate of inflation affects the Company's costsrelating to employee compensation, rent, communications andcertain other operating costs, and such costs may not berecoverable in the level of commissions charged. To the extentinflation results in rising interest rates and has other adverseeffects upon the securities markets, it may adversely affect theCompany's financial position and results of operations.

Newly Issued Accounting Standards

The Financial Accounting Standards Boardissued SFAS No. 146, "Accounting for Costs Associated withExit or Disposal Activities", FIN No. 45,"Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness ofOthers", and FIN No. 46, "Consolidation of VariableInterest Entities". The Company is reviewing this statementand these interpretations and does not expect their adoption tohave a material impact on its financial results. The Company isreviewing SFAS No. 148, "Accounting for Stock-BasedCompensation – Transition and Disclosure" and hasadopted the disclosure provisions, but does not intend to adoptother provisions of this standard in 2003.

Factors Affecting "Forward-LookingStatements"

From time to time, the Company may publish"Forward-looking statements" within the meaning ofSection 27A of the Securities Act of 1933, as amended ( the"Act"), and Section 21E of the Exchange Act or makeoral statements that constitute forward-looking statements. Theseforward-looking statements may relate to such matters asanticipated financial performance, future revenues or earnings,business prospects, projected ventures, new products, anticipatedmarket performance, and similar matters. The Private SecuritiesLitigation Reform Act of 1995 provides a safe harbor forforward-looking statements. In order to comply with the terms ofthe safe harbor, the Company cautions readers that a variety offactors could cause the Company’s actual results to differmaterially from the anticipated results or other expectationsexpressed in the Company’s forward-looking statements. Theserisks and uncertainties, many of which are beyond theCompany’s control, include, but are not limited to: (i)transaction volume in the securities markets, (ii) the volatilityof the securities markets, (iii) fluctuations in interest rates,(iv) changes in regulatory requirements which could affect thecost of doing business, (v) fluctuations in currency rates, (vi)general economic conditions, both domestic and international,(vii) changes in the rate of inflation and the related impact onthe securities markets, (viii) competition from existingfinancial institutions and other new participants in thesecurities markets, (ix) legal developments affecting thelitigation experience of the securities industry, (x) changes infederal and state tax laws which could affect the popularity ofproducts sold by the Company, and (xi) domestic and world events.The Company does not undertake any obligation to publicly updateor revise any forward-looking statements.

 

**Item 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

Risk Management

The Company’s principal businessactivities by their nature involve significant market, credit andother risks. The Company’s effectiveness in managing theserisks is critical to its success and stability. 

As part of its normal business operations,the Company engages in the trading of both fixed income andequity securities in both a proprietary and market-makingcapacity. The Company makes markets in over-the-counter equitiesin order to facilitate order flow and accommodate itsinstitutional and retail customers. The Company also makesmarkets in municipal bonds, mortgage-backed securities,government bonds and high yield bonds.

Market Risk

Market risk generally means the risk ofloss that may result from the potential change in the value of afinancial instrument as a result of fluctuations in interest andcurrency exchange rates and in equity and commodity prices.Market risk is inherent in all types of financial instruments,including both derivatives and non-derivatives. TheCompany’s exposure to market risk arises from its role as afinancial intermediary for its customers’ transactions andfrom its proprietary trading and arbitrage activities. (Seeadditional discussion under Risk Management in Item 1).

Operational Risk

Operational risk generally means the riskof loss resulting from improper processing of transactions ordeficiencies in the Company’s operating systems or internalcontrols. With respect to its trading activities, the Company hasprocedures designed to ensure that all transactions areaccurately recorded and properly reflected on the Company’sbooks on a timely basis. With respect to client activities, theCompany operates a system of internal controls designed to ensurethat transactions and other account activity (new accountsolicitation, transaction authorization, transaction processing,billing and collection) are properly approved, processed,recorded and reconciled. The Company has procedures designed toassess and monitor counterparty risk. For a discussion of fundingrisk, see ‘Liquidity and Capital Resources’, above.

Credit Risk

Credit risk arises from non-performance bytrading counterparties, customers and issuers of debt securitiesheld in the Company’s inventory. The Company manages thisrisk by imposing and monitoring position limits, regularlyreviewing trading counterparties, monitoring and limitingsecurities concentrations, marking positions to market on a dailybasis to evaluate and establish the adequacy of collateral, andwith respect to trading counterparties, conducting businessthrough clearing corporations which guarantee performance.Further discussion of credit risk appears in the Notes to theConsolidated Financial Statements, in Item 8.

 

Legal and Regulatory Risk

Legal and regulatory risk includes the riskof non-compliance with applicable legal and regulatoryrequirements. The Company is subject to extensive regulation inthe different jurisdictions in which it conducts its activities.The Company has comprehensive procedures for addressing issuessuch as regulatory capital requirements, sales and tradingpractices, use of and safekeeping of customer funds andsecurities, granting of credit, collection activities, moneylaundering, and record keeping.

 

Value-at-Risk 

Value-at-risk is a statistical measure ofthe potential loss in the fair value of a portfolio due toadverse movements in underlying risk factors. In response to theSecurities and Exchange Commission’s market risk disclosurerequirements, the Company has performed a value-at-risk analysisof its trading financial instruments and derivatives. Thevalue-at-risk calculation uses standard statistical techniques tomeasure the potential loss in fair value based upon a one-dayholding period and a 95% confidence level. The calculation isbased upon a variance-covariance methodology, which assumes anormal distribution of changes in portfolio value. The forecastsof variances and co-variances used to construct the model, forthe market factors relevant to the portfolio, were generated fromhistorical data. Although value-at-risk models are sophisticatedtools, their use can be limited as historical data is not alwaysan accurate predictor of future conditions. The Company attemptsto manage its market exposure using other methods, includingtrading authorization limits and concentration limits.

*At December 31, 2002 and 2001, theCompany’s value-at-risk for each component of market riskwas as follows (in thousands of U.S. dollars):*

|                           | Fiscal 2002 | As at December 31, |
|--------------------------------|-------------|--------------------|
|                           | High        | Low                | Average | 2002 | 2001 |
|                           |        |               |   |   |   |
| Interest        rate risk      | $150        | $175               | $152 | $150 | $203 |
| Equity        price risk       | $336        | 165                | 248 | 336 | 523 |
| Diversification        benefit | (18)        | (93)               | (56) | (18) | (385) |
|                           |        |               |   |   |   |
| Total                          | $468        | $247               | $344 | $468 | $341 |

The potential future loss presented by thetotal value-at-risk generally falls within predetermined levelsof loss that should not be material to the Company’s resultsof operations, financial condition or cash flows. The changes inthe value-at-risk amounts reported in 2002 from those reported in2001 reflect changes in the size and composition of theCompany’s trading portfolio at December 31, 2002 compared toDecember 31, 2001. At December 31, 2002 the Company was notholding any hedging positions, thus reducing the diversificationbenefit compared to 2001 when it did hold such positions. Furtherdiscussion of risk management appears in Item 7,Management’s Discussion and Analysis of the Results ofOperations and Item 1, Risk Management.

The value-at-risk estimate has limitationsthat should be considered in evaluating the Company’spotential future losses based on the year-end portfoliopositions. Recent market conditions including increasedvolatility, may result in statistical relationships that resultin higher value-at-risk than would be estimated from the sameportfolio under different market conditions. Likewise, theconverse may be true. Critical risk management strategy involvesthe active management of portfolio levels to reduce market risk.The Company’s market risk exposure is continuously monitoredas the portfolio risks and market conditions change.

 

**Item 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

The information required to be furnished inresponse to this Item is submitted hereinafter following thesignature pages hereto.

**Item 9. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

 

 

**PART III**

**Item 10. DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

General

Directors of the Company are electedannually by the holders of the Class B Shares to serve until thenext annual meeting of shareholders or until their successors areappointed. Executive officers are appointed annually by thedirectors or until their successors are appointed. Certaininformation concerning the executive officers and directors ofthe Company as at December 31, 2002 is set forth below.

| Name                       | Age    | Positions held                                                                                                                                                                                                                                                                                                                                                                                                |
|----------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| John L.        Bitove      | 75     | A        Director of the Company since February 1980; Retired        executive.
- Member of the        Audit and Compensation and Stock Option Committees                                                                                                                                                                                                                                                     |
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| Richard        Crystal     | 62     | A        Director of the Company since 1992; Partner Brown Raysman        Millstein Felder & Steiner LLP (law firm) since July        2002, U.S. counsel to the Company; Partner, Winston &        Strawn (law firm) and predecessor firms from 1985 to July        2002.                                                                                                                             |
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| Albert G.        Lowenthal | 57     | Chairman        of the Board, Chief Executive Officer and Director of the        Company since 1985; Chairman of the Board, Chief        Executive Officer and Director of Fahnestock since 1985;        prior to 1985, Mr. Lowenthal was President of Cowen        Securities Inc., a New York stock brokerage firm and a        general partner of Cowen & Co., a New York stock        brokerage firm. |
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| Kenneth        W. McArthur | 67     | A        Director of the Company since 1996; President and C.E.O.        of Shurway Capital Corporation ( a private corporation),        since July1993; Senior Vice-President of Bank of Montreal        Investment Counsel between January 1992 and July 1993;        Senior Vice-President of Nesbitt Thomson Inc. between        July 1989 and January 1993.
-        Member of the Audit Committee       |
| A. Winn        Oughtred    | 60     | A        Director of the Company since 1979; a Director of        Fahnestock since 1983; Secretary of the Company since        June, 1992 and prior to June, 1991; Partner, Borden        Ladner Gervais LLP (law firm), Canadian counsel to the        Company since 1979.                                                                                                                                   |

 

| Name                     | Age    | Positions held                                                                                                                                                                                                                |
|--------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |   |                                                                                                                                                                                                                          |
| Elaine K.        Roberts | 51     | President,        Treasurer and a Director of the Company since 1977;        Treasurer and a Director of Fahnestock since 1983.                                                                                               |
|                     |   |                                                                                                                                                                                                                          |
| Burton        Winberg    | 78     | A        Director of the Company since 1979; President of Rockport        Holdings Limited (a real estate development company)        since 1959. 
- Member of the        Audit and Compensation and Stock Option Committees. |

Compliance with Section 16(a) of theSecurities Exchange Act of 1934.

Section 16(a) of the Exchange Act requiresthe Company's directors and executive officers, and persons whoown more than ten percent of a registered class of the Company'sequity securities, to file by specific dates with the SEC initialreports of ownership and reports of changes in ownership ofequity securities of the Company. Officers, directors and greaterthan ten percent stockholders are required by SEC regulation tofurnish the Company with copies of all Section 16(a) forms thatthey file. The Company is required to report in this annualreport on Form 10-K any failure of its directors and executiveofficers and greater than ten percent stockholders to file by therelevant due date any of these reports during the two precedingfiscal years.

To the Company's knowledge, based solely onreview of copies of such reports furnished to the Company duringthe two fiscal years ended December 31, 2002 and representationsmade to the Company by such persons, all Section 16(a) filingrequirements applicable to the Company's officers, directors andgreater than ten percent stockholders were complied with. 

DIRECTORS COMPENSATION

In the year ended December 31, 2002, theCompany paid each of its directors an annual retainer fee of$10,000 plus $1,000 for each board or committee meeting attendedin person and $500 for board or committee meeting attended bytelephone. Directors are reimbursed for travel and relatedexpenses incurred in attending board and committee meetings.Directors who are not employees of the Company and itssubsidiaries are also entitled to the automatic grant of stockoptions under the Company’s 1996 Equity Incentive Plan, asamended, (the "Plan") pursuant to a formula set out inthe Plan.

DIRECTORS AND OFFICERS INSURANCE

The Company carries liability insurance forits directors and officers. On November 30, 2002, the Companyrenewed its directors and officers liability insurance for oneyear ending November 30, 2003 at an annual premium rate of$202,000. No part of the insurance premiums were or are to bepaid by the officers and directors. The aggregate insurancecoverage under both policies is limited to $10 million with $1million in deductibles. 

Under the by-laws of the Company, theCompany is obligated to indemnify the directors and officers ofthe Company and its subsidiaries to the maximum extent permittedby the Business Corporations Act (Ontario). The Company hasentered into indemnity agreements with each of its directorsproviding for such indemnities.

**Item 11. EXECUTIVE COMPENSATION**

With respect to the year ended December 31,2002, the Compensation and Stock Option Committee of the Board ofDirectors (the "Committee") was responsible for makingrecommendations for approval by the Board of Directors withrespect to the compensation of the Company’s executiveofficers. The members of this Committee are John L. Bitove andBurton Winberg, each of whom are outside directors of the Companyand have no interlocking relationship with the Company or itssubsidiaries.

Summary Compensation Table

*The following table sets forth totalannual compensation paid or accrued by the Company to or for theaccount of the Company's chief executive officer and each of thefour most highly paid executive officers of the Company andFahnestock, the Company’s principal operating subsidiary,other than the chief executive officer, whose total cashcompensation for the fiscal year ended December 31, 2002 exceeded$100,000 (the "Named Executives").*

|               |   | Annual        Compensation | Long-term

Compensation |              |   |
|--------------------|--------|----------------------------|-------------------------|-------------------|--------|
| Name and
Principal |   |                       |                    | Other

Annual     |   | Class A Shares

Underlying |   | All Other |
| Occupation         | Year   | Salary                     | Bonus                   | Compensation

(1) |   | Options |   | Compensation

(2) |
|               |   |                       |                    |              |   |   |   |   |
| A.G. Lowenthal,    | 2002   | $480,340                   | 0                       | $22,500           |   | 0 |   | $2,475 |
| Chairman, CEO,     | 2001   | $480,350                   | $497,500                | $18,000           |   | 0 |   | $5,725 |
| and Director of    | 2000   | $480,350                   | $3,960,000              | $17,330           |   | 0 |   | $7,693 |
| the Company;       |   |                       |                    |              |   |   |   |   |
| Chairman and CEO,  |   |                       |                    |              |   |   |   |   |
| and a director     |   |                       |                    |              |   |   |   |   |
| of Fahnestock      |   |                       |                    |              |   |   |   |   |
|               |   |                       |                    |              |   |   |   |   |
| Robert Neuhoff,    | 2002   | $260,000                   | $75,000                 | 0                 |   | 0 |   | $2,475 |
| Executive Vice     | 2001   | $260,000                   | $175,000                | 0                 |   | 0 |   | $5,725 |
| President and a    | 2000   | $260,000                   | $225,000                | 0                 |   | 0 |   | $7,693 |
| Director of        |   |                       |                    |              |   |   |   |   |
| Fahnestock         |   |                       |                    |              |   |   |   |   |
|               |   |                       |                    |              |   |   |   |   |
| Eric J. Shames,    | 2002   | $290,000                   | $75,000                 | 0                 |   | 0 |   | $2,475 |
| Secretary and      | 2001   | $290,000                   | $100,000                | 0                 |   | 0 |   | $5,725 |
| General Counsel of | 2000   | $250,000                   | $200,000                | 0                 |   | 0 |   | $7,693 |
| Fahnestock         |   |                       |                    |              |   |   |   |   |

 

|                   |   | Annual        Compensation | Long-term

Compensation |              |   |
|------------------------|--------|----------------------------|-------------------------|-------------------|--------|
| Name and
Principal     |   |                       |                    | Other

Annual     |   | Class A Shares

Underlying |   | All Other |
| Occupation             | Year   | Salary                     | Bonus                   | Compensation

(1) |   | Options |   | Compensation

(2) |
|                   |   |                       |                    |              |   |   |   |   |
| E.K. Roberts,          | 2002   | $183,300                   | $60,000                 | 22,500            |   | 0 |   | 0 |
| President, Treasurer   | 2001   | $158,000                   | $85,000                 | 18,000            |   | 0 |   | 0 |
| And Director of the    | 2000   | $135,000                   | $125,000                | 17,330            |   | 0 |   | 0 |
| Company,               |   |                       |                    |              |   |   |   |   |
| Treasurer and a        |   |                       |                    |              |   |   |   |   |
| director of Fahnestock |   |                       |                    |              |   |   |   |   |
|                   |   |                       |                    |              |   |   |   |   |
| Robert Maimone,        | 2002   | $170,000                   | $80,000                 | 0                 |   | 0 |   | $2,475 |
| Sr. Vice President,    | 2001   | $170,000                   | $80,000                 | 0                 |   | 0 |   | $5,725 |
| Operations of          | 2000   | $170,000                   | $100,000                | 0                 |   | 0 |   | $7,693 |
| Fahnestock             |   |                       |                    |              |   |   |   |   |

 

> 
(1) Includes Directors Fees of        $10,000 per year plus $1000 per meeting attended in        person and $500 per meeting attended by telephone.

(2) This amount represents Company        contributions to the Fahnestock 401(k) Plan.

 

 

OPTION GRANTS FOR THE YEAR ENDED DECEMBER31, 2002

None

 

 

AGGREGATED OPTION EXERCISES AND YEAR-ENDVALUE TABLE

*The following table sets forthinformation with respect to options exercised during the yearended December 31, 2002 by the Named Executives and as tounexercised options held by them at December 31, 2002:*

|           |   |        | Year-end |
|----------------|--------|-------------|----------|
|           |   |        |     |   | Number of shares |   | value of |
|           |   |        |     |   | Underlying |   | unexercised |
|           |   |        |     |   | unexercised |   | in-the-money |
|           |   | Shares      |     |   | options/SARs |   | options |
|           |   | Acquired    | Value    |   | exercisable/ |   | exercisable/ |
| Name           |   | on exercise | Realized |   | unexercisable |   | unexercisable |
|           |   |        |     |   |   |   |   |
| A.G. Lowenthal |   | 0           | 0        |   | 225,000/75,000 |   | $1,959,000/$853,000 |
| R. Neuhoff     |   | 0           | 0        |   | 25,000/50,000 |   | $284,000/$324,000 |
| E. J. Shames   |   | 0           | 0        |   | 22,500/7,500 |   | $196,000/$85,000 |
| E.K. Roberts   |   | 0           | 0        |   | 37,500/37,500 |   | $427,000/$427,000 |
| R. Maimone     |   | 0           | 0        |   | 0/12,500 |   | 0 |

 

 

REPORT OF THE COMPENSATION AND STOCK OPTIONCOMMITTEE

 

The following report of the Committeediscusses generally the Committee's executive compensationobjectives and policies and their relationship to corporateperformance in 2002. In addition, the report specificallydiscusses the Committee's bases for compensation in 2002 of theCorporation's Chief Executive Officer, as well as the othersenior executive officers of the Corporation and Fahnestock.

***Objectives and Policies***

The Committee's objective is to provide acompetitive compensation program with appropriate incentives forsuperior performance, thereby providing a strong and direct linkbetween corporate performance and compensation. Performance isdefined in several ways, as more fully discussed below, each ofwhich has relevance to the Corporation's success in theshort-term, long-term or both.

The Corporation's compensation program forsenior executive officers consists of the following key elements:a base salary, an annual bonus, grants of stock options and, inthe case of the Chief Executive Officer, the Performance-BasedCompensation Agreement referred to below.

In arriving at its recommendationsconcerning the specific components of the Corporation'scompensation program, the Committee considers certain publicinformation about the compensation paid by a group of comparablepublic Canadian and U.S. broker-dealers and the relativeperformance of the Corporation as measured by net income levelsand earnings per share, among other factors.

The Committee believes that this approachbest serves the interests of shareholders by enabling theCorporation to structure compensation in a way that meets therequirements of the highly competitive environment in which theCorporation operates, while ensuring that senior executiveofficers are compensated in a manner that advances both the shortand long-term interests of shareholders.

Compensation for the Corporation's seniorexecutive officers involves a significant component ofremuneration which is contingent on the performance of both theCorporation and the senior executive officer: the variable annualbonus (which permits individual performance to be recognized onan annual basis, and which is based, in significant part, on anevaluation of the contribution made by the officer to corporateperformance) and stock options (which directly relate a portionof compensation to stock price appreciation realized by theCorporation's shareholders).

*Base Salary.*Salaries paid to seniorexecutive officers (other than the Chief Executive Officer) arereviewed annually by the Committee considering recommendationsmade by the Chief Executive Officer to the Committee, based uponthe Chief Executive Officer's assessment of the nature of theposition, and the skills, experience and performance of eachsenior executive officer, as well as salaries paid by comparablecompanies in the Corporation's industry. The Committee then makesrecommendations to the Board with respect to base salaries.

*Annual Bonus.*Bonuses paid to seniorexecutive officers (other than the Chief Executive Officer) arereviewed annually by the Committee considering recommendationsmade by the Chief Executive Officer to the Committee, based uponthe Chief Executive Officer's assessment of the performance ofthe Corporation and his assessment of the contribution of eachsenior executive to that performance. Senior executive officers,including the Chief Executive Officer, of Fahnestock have theright to elect to defer a portion of their annual bonus andperformance-based compensation under Fahnestock's ExecutiveDeferred Compensation Plan, a non-qualified unfunded plan. TheCommittee then makes recommendations to the Board with respect tobonuses.

*Stock Option Grants.*Under the Plan,as amended, senior executive officers and employees of theCorporation and its subsidiaries (other than the Chief ExecutiveOfficer) are granted stock options by the Committee based uponthe recommendations of the Chief Executive Officer and based upona variety of considerations, including the date of the last grantmade to the officer or employee, as well as considerationsrelating to the contribution and performance of the specificoptionee.

***Chief Executive Officer Compensation***

Mr. A.G. Lowenthal, the Chairman of theBoard and the Chief Executive Officer of the Corporation andFahnestock, is paid a base salary set by the Committee, plusperformance-based compensation under the Performance-BasedCompensation Agreement referred to below and, at the discretionof the Committee, is eligible for bonuses and grants of stockoptions.

On January 1, 2001, the Corporation enteredinto a Performance-Based Compensation Agreement (the "2001Comp Agreement") with Albert G. Lowenthal, which expires onDecember 31, 2005. The 2001 Comp Agreement was approved by theClass B Shareholders in 2001. The purpose of the 2001 CompAgreement is to set the terms under which Mr. Lowenthal'sperformance-based compensation is to be calculated during theterm thereof.

In March of 2002, the Committee establishedperformance goals under the 2001 Comp Agreement entitling Mr.Lowenthal to a Performance Award under the 2001 Comp Agreementfor the year 2002 of an aggregate of the 2002 amounts determinedby the application of the following formulae,

| (a) an amount                equal to the amount by which the closing price of                one Class A Share at December 31, 2002, exceeded                the closing price of one Class A Share as at                January 1, 2002 multiplied by 200,000 shares;                plus                                                                                                                            | nil      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| (b) an amount                equal to:                                                                                                                                                                                                                                                                                                                                                                                 |     |
| (i) 3% of                        the amount by which the Corporation's                        consolidated profit before income taxes                        for the year ended December 31, 2002                        exceeds 15% of and is less than 25% of                        the Corporation's consolidated                        shareholders' equity as at December 31,                        2001; plus | nil      |
| (ii) 4% of                        the amount by which the Corporation's                        consolidated profit before income taxes                        for the year ended December 31, 2002                        exceeds 25% of the Corporation's                        consolidated shareholders' equity as at                        December 31, 2001; plus                                               | nil      |
| (c) an amount                equal to:

(i) 3.0%                        percent of the amount by which the                        Corporation’s consolidated net                        profit for the year ended December 31,                        2002 is greater than U.S.$0 and less than                        U.S.$11,500,000; plus                                                                      | $226,410 |
| 4.0% of the amount                by which the Corporation’s consolidated net                profit for the year ended December 31, 2002 is                greater than U.S.$11,500,000 and less than                U.S.$23,000,000; plus                                                                                                                                                                        | nil      |
| (ii) 4.5%                        of the amount by which the                        Corporation’s consolidated net                        profit for the year ended December 31,                        2002 is greater than U.S.$23,000,000.                                                                                                                                                                      | nil      |
| Total                                                                                                                                                                                                                                                                                                                                                                                                                  | $226,410 |

Because of the Corporation's performance in2002, Mr. Lowenthal requested and the Committee agreed that Mr.Lowenthal not receive a Performance Award under the 2001 CompAgreement or any discretionary bonus for 2002.

In March of 2002, the Committee set Mr.Lowenthal’s base salary for 2002 at $480,340, the same basesalary as 2001.

***U.S. Internal Revenue Code Section162(m)***

The Corporation is a Canadian taxpayer.However, because Fahnestock is a U.S. taxpayer, most compensationissues are affected by the U.S. Internal Revenue Code of 1986, asamended (the "U.S. Tax Code").

Section 162(m) of the U.S. Tax Codegenerally disallows a tax deduction to public corporations forannual compensation of over $1,000,000 paid to any of thecompany's chief executive officer and four other most highly paidexecutive officers (determined as of the end of each fiscal year)unless such compensation constitutes qualified performance-basedcompensation or otherwise qualifies for an exception.

In order to qualify for exemptions underSection 162(m) in 2001 the 2001 Comp Agreement was adopted andapproved by the Class B Shareholders.

To the extent consistent with theCorporation's general compensation objectives, the Committeeconsiders the potential effect of Section 162(m) on compensationpaid to the executive officers of the Corporation and itssubsidiaries. However, the Committee reserves the right to awardand recommend the awarding of nondeductible compensation in anycircumstances it deems appropriate. Further, because ofambiguities and uncertainties as to the application andinterpretation of Section 162(m) and the regulations issuedthereunder, no assurance can be given, notwithstanding theCorporation's efforts to qualify, that the compensation paid bythe Corporation to its executive officers will in fact satisfythe requirements for the exemption from the Section 162(m)deduction limit.

***Members of the Compensation and StockOption Committee***

Burton Winberg — Chairman

John L. Bitove

 

 

 

SHARE PERFORMANCE GRAPH

The following graph shows changes over thepast five year period of U.S. $100 invested in (1) theCompany’s Class A Shares, (2) the Standard & Poor’s500 Index and (3) the Standard & Poors/Toronto Stock ExchangeComposite Index.

[GRAPH]

|                             | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 |
|----------------------------------|------|------|------|------|------|------|
| Fahnestock                       | 100  | 102  | 87   | 163  | 119  | 90   |
| S&P        500 Index         | 100  | 127  | 120  | 87   | 90   | 77   |
| S&P        500/TSX Composite | 100  | 97   | 130  | 106  | 86   | 86   |

**Item 12. SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

The authorized capital of the Companyincludes an unlimited number of Class A Shares of which12,665,851 Class A Shares are issued and outstanding and 99,680Class B Shares, all of which are issued and outstanding.

The following table sets forth certaininformation regarding the beneficial ownership of, or the exerciseof control or discretion over, each class ofshares of the Company as at March 17, 2003, with respect to(i) each person known by the Company to beneficially own or exercisecontrol or discretion over more than 5% of any class of the Company’s shares,(ii)each of the Company’s directors, (iii) each of theCompany’s executive officers named in the SummaryCompensation Table and (iv) the directors and officers as agroup.

For purposes of the table, beneficialownership is determined pursuant to Rule 13d-3 of the U.S.Securities Exchange Act of 1934, as amended, pursuant to which aperson or group of persons is deemed to have "beneficialownership" of a class of outstanding shares which suchperson or group has the right to acquire within 60 days afterMarch 17, 2003. The percentage of shares deemed outstanding isbased on 12,665,851 Class A Shares and 99,680 Class B Sharesoutstanding as of March 17, 2003. In addition, for purposes ofcomputing the percentage of Class A Shares owned by each persons,the percentage includes all Class A Shares issuable upon exerciseof outstanding options held by such persons within 60 days afterMarch 17, 2003.

There are no outstanding rights to acquirebeneficial ownership of any Class B Shares.

|                                                                                                   | Class A Shares |   | Class B Shares |
|--------------------------------------------------------------------------------------------------------|----------------|--------|----------------|
| Name        and Address of Beneficial Owner                                                            | Shares         | %      |           | Shares | % |
| Private        Capital Management, L.P.
8889        Pelican Bay Boulevard

Suite 500

Naples, FL 34108 | 4,365,090      | 34.5%  |           | - | - |
| AIC        Limited
1375 Kerns Road

Burlington, Canada L7R 4X8                                         | 1,837,800      | 14.5%  |           | - | - |
| Olga        Roberts (2)
20 Eglinton Ave.        W.

Suite 1110

Toronto, Canada M4R 1K8                | 324,955        | 2.6%   |           | 44,309 | 44.4% |
| Albert G.        Lowenthal (1)
125 Broad St

New York, NY 10004                                        | 2,726,113      | 21.3%  |           | 50,490 | 50.6% |
| J.L.        Bitove                                                                                     | 50,580         | *      |           | 20 | * |
| R.        Crystal (8)                                                                                  | 7,700          | *      |           | - | - |

 

|                                                            | Class A Shares |   | Class B Shares |
|-----------------------------------------------------------------|----------------|--------|----------------|
| Name        and Address of Beneficial Owner                     | Shares         | %      |           | Shares | % |
| R.        Maimone (6)                                           | 49,492         | *      |           | - | - |
| K.W.        McArthur (4)                                        | 50,000         | *      |           | - | - |
| R.        Neuhoff (5)                                           | 68,640         | *      |           | - | - |
| A.W.        Oughtred                                            | 3,500          | *      |           | - | - |
| E.K.        Roberts (3)                                         | 173,244        | 1.4%   |           | 108 | * |
| E.J.        Shames (7)                                          | 58,250         | *      |           | - | - |
| B.        Winberg                                               | 4,400          | *      |           | - | - |
| Executive        Officers and Directors as a group (10 persons) | 3,191,919      | 24.7%  |           | 50,618 | 50.8% |

________________________________________

* less than 1%

(1) With respect to the Class A Shares, Mr.Lowenthal is the sole general partner of Phase II Financial L.P., a New York limited partnership, ("Phase II L.P.")which is the record holder of 2,595,900 Class A Shares. Mr.Lowenthal holds 11,347 Class A Shares through the Company's401(k) plan, 5,000 through the Albert G. Lowenthal Foundation and1,366 Class A Shares directly. 112,500 Class A Shares arebeneficially owned in respect of Class A Shares currentlyissuable upon exercise of options issued under the Plan. Withrespect to the Class B Shares, Phase II, an Ontario corporationwholly-owned by Mr. Lowenthal, is the holder of record of allsuch shares.

(2) With respect to the Class B Shares,Mrs. Roberts, who is the mother of Elaine Roberts, President ofthe Company, owns 100 Class B Shares directly and 44,209 Class BShares indirectly through Elka Estates Limited, an Ontariocorporation ("Elka") which is wholly-owned by Mrs.Roberts. With respect to the Class A Shares, Mrs. Roberts owns41,900 Class A Shares directly and 283,055 Class A Shares throughElka Estates Limited,

(3) 116,994 Class A Shares are helddirectly and 56,250 Class A Shares are beneficially owned inrespect of Class A Shares issuable upon exercise of optionsissued under the Plan. 

(4) 35,000 Class A Shares are held directlyand 15,000 Class A Shares are beneficially owned in respect ofClass A Shares issuable upon exercise of options issued under thePlan.

(5) 20,000 Class A Shares are helddirectly, 4,890 Class A Shares are held through theCompany’s 401(k) plan and 43,750 Class A Shares arebeneficially owned in respect of Class A Shares issuable uponexercise of options issued under the Plan. 

(6) 38,125 Class A Shares are helddirectly, and 8,242 Class A Shares are held through theCompany’s 401(k) plan and 3,125 Class A Shares arebeneficially owned in respect of Class A Shares issuable uponexercise of options issued under the Plan.

(7) 30,000 Class A Shares are helddirectly, 2,000 Class A Shares are held through theCompany’s 401(k) plan and 26,250 Class A Shares arebeneficially owned in respect of Class A Shares issuable uponexercise of options issued under the Plan.

(8) 2,700 Class A Shares are held directlyand 5,000 Class A Shares are beneficially owned in respect ofClass A Shares issuable upon exercise of options issued under thePlan.

 

(c) There are no arrangements, known to theCompany, the operation of which may at a subsequent date resultin a change of control of the Company. 

**Item 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

During the year 2002 certain of thedirectors, executive officers and senior officers of the Companyand Fahnestock maintained margin accounts with Fahnestock inconnection with the purchase of securities (including securitiesof the Company) which margin accounts are substantially on thesame terms including interest rates and collateral, as thoseprevailing from time to time for comparable transactions withnon-affiliated persons and do not involve more than the normalrisk of collectability. The details of their indebtedness toFahnestock on their margin accounts is as follows:

| Name and        Principal Position                                                | Largest Amount Outstanding During 2002 | Amount Outstanding as at December 31, 2002 | Security        for Indebtedness |
|-----------------------------------------------------------------------------------|----------------------------------------|--------------------------------------------|----------------------------------|
| Albert G.        Lowenthal,
Chairman and CEO        of the Company and Fahnestock | $27,800                                | nil                                        | Margined        securities       |
| R.        Maimone, Senior V.P., Operations of Fahnestock                          | $602,700                               | $602,700                                   | Margined        securities       |
| Eric        Shames,
Secretary and Chief        Legal Officer of Fahnestock        | $122,300                               | $122,300                                   | Margined        securities       |

 

**Item 14. CONTROLS AND PROCEDURES**

     Within 90 daysprior to the filing of this report, an evaluation was carried outunder the supervision and with the participation of theCompany’s management, including its Chief Executive Officerand Chief Financial Officer, of the effectiveness of the designand operation of the Company’s disclosure controls andprocedures (as defined in Rule 13a-14(c) under the ExchangeAct). Based upon that evaluation, the Chief Executive Officer andChief Financial Officer concluded that the design and operationof the Company’s disclosure controls and procedures wereeffective. No significant changes were made in the Company’sinternal controls or in other factors that could significantlyaffect these controls subsequent to the date of their evaluation.

 

 

**PART IV**

**Item 15. EXHIBITS, FINANCIAL STATEMENTSCHEDULES AND REPORTS ON**

**FORM 8-K**

| (a)    | (i)    | Financial        Statements                                                                                                                                                                                                             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | The        response to this portion of Item 15 is submitted as a        separate section of this report. See pages F-1 to F-20                                                                                                          |
|   |   |                                                                                                                                                                                                                                    |
|   | (ii)   | Financial        Statement Schedules                                                                                                                                                                                                    |
|   |   | Not        Applicable.                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                    |
|   | (iii)  | Listing        of Exhibits                                                                                                                                                                                                              |
|   |   | The        exhibits which are filed with this Form 10-K or are        incorporated herein by reference are set forth in the        Exhibit Index which immediately precedes the exhibits to        this report.                         |
|   |   |                                                                                                                                                                                                                                    |
| (b)    |   | Reports        on Form 8-K                                                                                                                                                                                                              |
|   |   | The        Company filed a report on Form 8-K on January 17, 2003        under Item 2 with respect to the acquisition on January        3, 2003 of the U.S. Private Client and Asset Management        Divisions of CIBC World Markets. |
|   |   |                                                                                                                                                                                                                                    |
|   |   | The        Company filed a report on Form 8-K on January 22, 2003        under Item 5 with respect to the receipt of an award by a        National Securities Association of Securities Dealers        Dispute Resolution Panel.        |
|   |   |                                                                                                                                                                                                                                    |
| (c)    |   | Exhibits                                                                                                                                                                                                                                |
|   |   | See the        Exhibit Index included hereinafter.                                                                                                                                                                                      |

 

**SIGNATURES**

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, in the City of New York,State of New York, on the 18th day of March, 2003.

FAHNESTOCK VINER HOLDINGS INC.

BY: "E.K. Roberts"

E.K. Roberts, President

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed bythe following persons in the capacities and on the datesindicated.

| Signature                         | Title                                                         | Date                  |
|-----------------------------------|---------------------------------------------------------------|-----------------------|
|                              |                                                          |                  |
| "R. Crystal"            | Director                                                      | March 18,        2003 |
| R. Crystal                        |                                                          |                  |
|                              |                                                          |                  |
| "A.G.        Lowenthal" | Chairman,        Chief Executive                              | March 18,        2003 |
| A.G.        Lowenthal             | Officer,        Director                                      |                  |
|                              | Director                                                      |                  |
|                              |                                                          |                  |
| "K.W.McArthur"          | Director                                                      | March 18,        2003 |
| K.W.McArthur                      |                                                          |                  |
| "A.W.        Oughtred"  | Secretary,        Director                                    | March 18,        2003 |
| A.W.        Oughtred              |                                                          |                  |
|                              |                                                          |                  |
| "E.K.        Roberts"   | President        & Treasurer,                             | March 18,        2003 |
| E.K.        Roberts               | (Principal        Financial and Accounting Officer), Director |                  |
|                              |                                                          |                  |

 

 

**CERTIFICATION**

I, Albert G. Lowenthal, certify that: 

> 
1. I have reviewed this annual        report on Form 10-K of Fahnestock Viner Holdings        Inc.; 

2. Based on my knowledge, this        annual report does not contain any untrue statement of a        material fact or omit to state a material fact necessary        to make the statements made, in light of the        circumstances under which such statements were made, not        misleading with respect to the period covered by this        annual report; 

3. Based on my knowledge, the        financial statements, and other financial information        included in this annual report, fairly present in all        material respects the financial condition, results of        operations and cash flows of the registrant as of, and        for, the periods presented in this annual report; 

4. The registrant’s other        certifying officers and I are responsible for        establishing and maintaining disclosure controls and        procedures (as defined in Exchange Act Rules 13a-14        and 15d-14) for the registrant and we have: 

|   | a) designed        such disclosure controls and procedures to ensure that        material information relating to the registrant,        including its consolidated subsidiaries, is made known to        us by others within those entities, particularly during        the period in which this annual report is being prepared; |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | b) evaluated        the effectiveness of the registrant’s disclosure        controls and procedures as of a date within 90 days        prior to the filing date of this annual report (the        "Evaluation Date"); and                                                                                      |   |
|   | c) presented        in this annual report our conclusions about the        effectiveness of the disclosure controls and procedures        based on our evaluation as of the Evaluation Date;                                                                                                                                       |   |

> 
5. The registrant’s other        certifying officers and I have disclosed, based on our        most recent evaluation, to the registrant’s auditors        and the audit committee of registrant’s board of        directors (or persons performing the equivalent        function): 

|   | a) all        significant deficiencies in the design or operation of        internal controls which could adversely affect the        registrant’s ability to record, process, summarize        and report financial data and have identified for the        registrant’s auditors any material weaknesses in        internal controls; and |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | b) any        fraud, whether or not material, that involves management        or other employees who have a significant role in the        registrant’s internal controls; and                                                                                                                                                                   |   |

> 
6. The registrant’s other        certifying officers and I have indicated in this annual        report whether or not there were significant changes in        internal controls or in other factors that could        significantly affect internal controls subsequent to the        date of our most recent evaluation, including any        corrective actions with regard to significant        deficiencies and material weaknesses. 

 

|   | "A.G.        Lowenthal" |   |
|--------|-----------------------------------|--------|
|   | Name: Albert G. Lowenthal         |   |
|   | Title: Chief Executive Officer    |   |

March 17, 2003

**CERTIFICATION**

I, Elaine K. Roberts, certify that: 

> 
5. I have reviewed this annual        report on Form 10-K of Fahnestock Viner Holdings        Inc.; 

6. Based on my knowledge, this        annual report does not contain any untrue statement of a        material fact or omit to state a material fact necessary        to make the statements made, in light of the        circumstances under which such statements were made, not        misleading with respect to the period covered by this        annual report; 

7. Based on my knowledge, the        financial statements, and other financial information        included in this annual report, fairly present in all        material respects the financial condition, results of        operations and cash flows of the registrant as of, and        for, the periods presented in this annual report; 

8. The registrant’s other        certifying officers and I are responsible for        establishing and maintaining disclosure controls and        procedures (as defined in Exchange Act Rules 13a-14        and 15d-14) for the registrant and we have: 

|   | a) designed        such disclosure controls and procedures to ensure that        material information relating to the registrant,        including its consolidated subsidiaries, is made known to        us by others within those entities, particularly during        the period in which this annual report is being prepared; |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | b) evaluated        the effectiveness of the registrant’s disclosure        controls and procedures as of a date within 90 days        prior to the filing date of this annual report (the        "Evaluation Date"); and                                                                                      |   |
|   | c) presented        in this annual report our conclusions about the        effectiveness of the disclosure controls and procedures        based on our evaluation as of the Evaluation Date;                                                                                                                                       |   |

> 
5. The registrant’s other        certifying officers and I have disclosed, based on our        most recent evaluation, to the registrant’s auditors        and the audit committee of registrant’s board of        directors (or persons performing the equivalent        function): 

|   | a) all        significant deficiencies in the design or operation of        internal controls which could adversely affect the        registrant’s ability to record, process, summarize        and report financial data and have identified for the        registrant’s auditors any material weaknesses in        internal controls; and |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | b) any        fraud, whether or not material, that involves management        or other employees who have a significant role in the        registrant’s internal controls; and                                                                                                                                                                   |   |

> 
6. The registrant’s other        certifying officers and I have indicated in this annual        report whether or not there were significant changes in        internal controls or in other factors that could        significantly affect internal controls subsequent to the        date of our most recent evaluation, including any        corrective actions with regard to significant        deficiencies and material weaknesses. 

 

|   | "E.K.        Roberts" |   |
|--------|---------------------------------|--------|
|   | Name: Elaine K. Roberts         |   |
|   | Title: Chief Financial Officer  |   |

March 17, 2003

 

INDEX TO CONSOLIDATED FINANCIALSTATEMENTS

FAHNESTOCK VINER HOLDINGS INC.

 

| Management’s        Responsibility for Consolidated Financial Statements                                                            | F2     |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                     |   |
| Report        of Independent Accountants                                                                                                 | F3     |
|                                                                                                                                     |   |
| Consolidated        Balance Sheets as of December 31, 2002 and 2001                                                                      | F4     |
|                                                                                                                                     |   |
| Consolidated        Statements of Operations for the three years ended
December 31, 2002, 2001 and 2000                                  | F5     |
|                                                                                                                                     |   |
| Consolidated        Statements of Changes in Shareholders’ Equity for        the three years ended December 31, 2002, 2001 and 2000 | F6     |
|                                                                                                                                     |   |
| Consolidated        Statements of Cash Flows for the three years ended
December 31, 2002, 2001 and 2000                                  | F7     |
|                                                                                                                                     |   |
| Notes        to Consolidated Financial Statements                                                                                        | F8     |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F1

 

MANAGEMENT'S RESPONSIBILITY FORCONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidatedfinancial statements of Fahnestock Viner Holdings Inc. wereprepared by management in accordance with accounting principlesgenerally accepted in the United States of America, which conformin all material respects with accounting principles generallyaccepted in Canada. The significant accounting policies of theCompany are described in Note 1 to the consolidated financialstatements.

Management is responsible for theintegrity and objectivity of the information contained in theconsolidated financial statements. In order to present fairly thefinancial position of the Company and the results of itsoperations and its cash flows, estimates which are necessary arebased on careful judgments and have been properly reflected inthe consolidated financial statements. Management has establishedsystems of internal control which are designed to providereasonable assurance that assets are safeguarded from loss orunauthorized use and to produce reliable accounting records forthe preparation of financial information.

PricewaterhouseCoopers LLP, theCompany's independent auditors, conduct an audit of theconsolidated financial statements in accordance with auditingstandards generally accepted in the United States of America.Their audit includes a review and evaluation of the Company'ssystems of internal control, and such tests and procedures asthey consider necessary in order to form an opinion as to whetherthe consolidated financial statements are presented fairly inaccordance with accounting principles generally accepted in theUnited States of America.

The Board of Directors isresponsible for ensuring that management fulfills itsresponsibilities for financial reporting and internal control.The Board of Directors is assisted in this responsibility by itsAudit Committee, whose members are not officers of the Company.The Audit Committee meets with management as well as with theindependent auditors to review the internal controls,consolidated financial statements, and the auditors’ report.The Audit Committee reports its findings to the Board ofDirectors for its consideration in approving the consolidatedfinancial statements for issuance to the shareholders.

Management recognizes itsresponsibility for conducting the Company's affairs in compliancewith established financial standards, and applicable laws andregulations, and for maintaining proper standards of conduct forits activities. 

/s/A.G. Lowenthal /s/E.K. Roberts

A.G. Lowenthal, E.K. Roberts,

Chairman of the Board Presidentand Treasurer

and Chief Executive Officer

February 25, 2003 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F2

AUDITORS’REPORT

TO THE SHAREHOLDERS OF FAHNESTOCKVINER HOLDINGS INC.

 

In our opinion, the accompanyingconsolidated balance sheets and the related consolidatedstatements of operations, changes in shareholders’ equityand cash flows present fairly, in all material respects, thefinancial position of Fahnestock Viner Holdings Inc. and itssubsidiaries at December 31, 2002 and 2001, and the results oftheir operations and their cash flows for each of the three yearsin the period ended December 31, 2002 in conformity withaccounting principles generally accepted in the United States ofAmerica. These financial statements are the responsibility of theCompany’s management; our responsibility is to express anopinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance withauditing standards generally accepted in the United States ofAmerica, which require that we plan and perform the audits toobtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, andevaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for ouropinion.

As discussed in note 2, theCompany has adopted the goodwill provisions of Statements ofFinancial Accounting Standard No. 142, "Goodwill and OtherIntangibles".

/s/PricewaterhouseCoopers LLP

New York, New York

February 25, 2003.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F3

**** 

 

| FAHNESTOCK        VINER HOLDINGS INC.                                                                 |
|-------------------------------------------------------------------------------------------------------|
| CONSOLIDATED        BALANCE SHEETS                                                                    |
| AS AT DECEMBER        31,                                                                             |
|                                                                                                  |   | 2002 |   | 2001 |
|                                                                                                  | (Expressed in        thousands of U.S. dollars) |
| ASSETS                                                                                                |   |   |   |   |
| Current assets                                                                                        |   |   |   |   |
| Cash and cash equivalents                                                                             |   | $16,115 |   | $24,217 |
| Restricted deposits (note 3)                                                                          |   | 7,440 |   | 2,393 |
| Deposits with clearing        organizations                                                           |   | 3,606 |   | 7,686 |
| Receivable from brokers and        clearing organizations                                             |   | 492,094 |   | 100,694 |
| Receivable from customers                                                                             |   | 392,929 |   | 463,986 |
| Securities owned, including amounts        pledged, at market value (note 4)                          |   | 50,173 |   | 50,575 |
| Other                                                                                                 |   | 45,430 |   | 37,531 |
|                                                                                                  |   | 1,007,787 |   | 687,082 |
| Other assets                                                                                          |   |   |   |   |
| Stock exchange seats (approximate        market value                                                 |   |   |   |   |
| $6,716; $8,155 in 2001)                                                                               |   | 2,994 |   | 3,018 |
| Property, plant and equipment (note        5)                                                         |   | 8,488 |   | 9,992 |
| Goodwill                                                                                              |   | 11,957 |   | 10,183 |
|                                                                                                  |   | 23,439 |   | 23,193 |
|                                                                                                  |   | $1,031,226 |   | $710,275 |
| LIABILITIES AND SHAREHOLDERS'        EQUITY                                                           |   |   |   |   |
| Current liabilities                                                                                   |   |   |   |   |
| Drafts payable                                                                                        |   | $21,653 |   | $20,622 |
| Bank call loans (note 6)                                                                              |   | 16,200 |   | 13,134 |
| Payable to brokers and clearing        organizations                                                  |   | 520,743 |   | 179,212 |
| Payable to customers                                                                                  |   | 162,343 |   | 188,387 |
| Securities sold, but not yet        purchased, at market value (note 4)                               |   | 9,606 |   | 8,921 |
| Accounts payable and other        liabilities                                                         |   | 50,988 |   | 56,812 |
| Income taxes payable                                                                                  |   | 2,057 |   | 1,492 |
|                                                                                                  |   | 783,590 |   | 468,580 |
| Commitments and contingencies (note        11)                                                        |   |   |   |   |
| Shareholders' equity                                                                                  |   |   |   |   |
| Share capital (note 7)                                                                                |   |   |   |   |
| 12,397,007 Class A non-voting        shares issued 
(2001-12,337,085        shares issued)            |   | 34,338 |   | 34,124 |
| 99,680 Class B voting shares issued                                                                   |   | 133 |   | 133 |
|                                                                                                  |   | 34,471 |   | 34,257 |
| Contributed capital (note 8)                                                                          |   | 5,028 |   | 4,113 |
| Retained earnings                                                                                     |   | 208,137 |   | 203,325 |
|                                                                                                  |   | 247,636 |   | 241,695 |
|                                                                                                  |   | $1,031,226 |   | $710,275 |
| Approved on        behalf of the Board:                                                               |
| The        accompanying notes are an integral part of these        consolidated financial statements. |

 

 

 

 

 

F4

| FAHNESTOCK        VINER HOLDINGS INC.                                                                 |
|-------------------------------------------------------------------------------------------------------|
| CONSOLIDATED        STATEMENTS OF OPERATIONS                                                          |
| FOR THE YEAR        ENDED DECEMBER 31,                                                                |
|                                                                                                  |   | 2002 |   | 2001 |   | 2000 |
|                                                                                                  | (Expressed in        thousands of U.S. dollars, except per share amounts) |
| REVENUE:                                                                                              |   |   |   |   |   |   |
| Commissions                                                                                           |   | $135,747 |   | $122,272 |   | $128,915 |
| Principal transactions, net                                                                           |   | 58,227 |   | 56,374 |   | 84,420 |
| Interest                                                                                              |   | 27,622 |   | 34,309 |   | 63,696 |
| Underwriting fees                                                                                     |   | 22,760 |   | 10,955 |   | 9,314 |
| Advisory fees                                                                                         |   | 26,365 |   | 24,504 |   | 21,764 |
| Other                                                                                                 |   | 12,612 |   | 12,847 |   | 8,390 |
|                                                                                                  |   | 283,333 |   | 261,261 |   | 316,499 |
|                                                                                                  |   |   |   |   |   |   |
| EXPENSES:                                                                                             |   |   |   |   |   |   |
| Compensation and related expenses                                                                     |   | 169,810 |   | 148,838 |   | 154,881 |
| Clearing and exchange fees                                                                            |   | 9,607 |   | 6,012 |   | 7,205 |
| Communications                                                                                        |   | 32,066 |   | 23,620 |   | 23,312 |
| Occupancy costs                                                                                       |   | 22,908 |   | 15,691 |   | 12,465 |
| Interest                                                                                              |   | 8,379 |   | 14,071 |   | 33,122 |
| Other                                                                                                 |   | 27,646 |   | 21,417 |   | 13,802 |
|                                                                                                  |   | 270,416 |   | 229,649 |   | 244,787 |
|                                                                                                  |   |   |   |   |   |   |
| Profit before income taxes                                                                            |   | 12,917 |   | 31,612 |   | 71,712 |
|                                                                                                  |   |   |   |   |   |   |
| Income tax provision (note 9)                                                                         |   | 5,370 |   | 12,462 |   | 30,811 |
|                                                                                                  |   |   |   |   |   |   |
| Profit before cumulative effect of a change        in accounting principle                            |   | 7,547 |   | 19,150 |   | 40,901 |
| Cumulative effect of a change in accounting        principle (note 2)                                 |   | 1,774 |   | - |   | - |
|                                                                                                  |   |   |   |   |   |   |
| NET PROFIT FOR YEAR                                                                                   |   | $9,321 |   | $19,150 |   | $40,901 |
|                                                                                                  |   |   |   |   |   |   |
| Earnings per share (notes 2 and 10)                                                                   |   |   |   |   |   |   |
| Basic earnings per share                                                                              |   | $0.75 |   | $1.55 |   | $3.38 |
| - Before the effect of a change in        accounting                                                  |   |   |   |   |   |   |
| Principle                                                                                             |   | $0.61 |   | $1.55 |   | $3.38 |
| - Cumulative effect of a change in        accounting principle                                        |   | $0.14 |   | - |   | - |
|                                                                                                  |   |   |   |   |   |   |
| Diluted earnings per share                                                                            |   | $0.73 |   | $1.50 |   | $3.29 |
|                                                                                                  |   |   |   |   |   |   |
| The        accompanying notes are an integral part of these        consolidated financial statements. |
|                                                                                                  |   |   |   |   |   |   |
|                                                                                                  |

 

 

 

 

F5

| FAHNESTOCK        VINER HOLDINGS INC.                                  |
|------------------------------------------------------------------------|
| CONSOLIDATED        STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
| FOR THE YEAR        ENDED DECEMBER 31,                                 |
|                                                                   |   | 2002 |   | 2001 |   | 2000 |
|                                                                   | (Expressed in        thousands of U.S. dollars) |
| SHARE CAPITAL                                                          |   |   |   |   |   |   |
| Balance at beginning of year                                           |   | $34,257 |   | $29,683 |   | $32,651 |
| Issue of Class A non-voting shares                                     |   | 3,503 |   | 4,723 |   | 948 |
| Repurchase of Class A non-voting shares for        cancellation        |   | (3,289) |   | (149) |   | (3,916) |
|                                                                   |   |   |   |   |   |   |
| Balance at end of year                                                 |   | $34,471 |   | $34,257 |   | $29,683 |
|                                                                   |   |   |   |   |   |   |
| CONTRIBUTED CAPITAL                                                    |   |   |   |   |   |   |
| Balance at beginning of year                                           |   | $4,113 |   | $3,499 |   | $3,262 |
| Tax benefit from employee stock options        exercised               |   | 915 |   | 614 |   | 237 |
|                                                                   |   |   |   |   |   |   |
| Balance at end of year                                                 |   | $5,028 |   | $4,113 |   | $3,499 |
|                                                                   |   |   |   |   |   |   |
| RETAINED EARNINGS                                                      |   |   |   |   |   |   |
| Balance at beginning of year                                           |   | $203,325 |   | $188,618 |   | $151,475 |
| Net profit for year                                                    |   | 9,321 |   | 19,150 |   | 40,901 |
| Dividends paid                                                         |   | (4,509) |   | (4,443) |   | (3,758) |
|                                                                   |   |   |   |   |   |   |
| Balance at end of year                                                 |   | $208,137 |   | $203,325 |   | $188,618 |
|                                                                   |   |   |   |   |   |   |
| Total Shareholders’ Equity                                        |   | $247,636 |   | $241,695 |   | $221,800 |

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F6

| FAHNESTOCK VINER HOLDINGS INC.                                                          |
|-----------------------------------------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH        FLOWS                                            |
| FOR THE YEAR ENDED DECEMBER 31,                                                         |
|                                                                                    | 2002 |   | 2001 |   | 2000 |
| (Expressed in        thousands of U.S. dollars)                                         |
| Cash flows from operating        activities:                                            |   |   |   |   |   |
| Net profit for year                                                                     | $9,321 |   | $19,150 |   | $40,901 |
| Adjustments to reconcile net profit        to net cash provided                         |   |   |   |   |   |
| by (used in) operating activities:                                                      |   |   |   |   |   |
| Non-cash items included in net        profit:                                           |   |   |   |   |   |
| Depreciation and amortization                                                           | 4,864 |   | 3,974 |   | 3,472 |
| Loss on disposal of fixed assets                                                        | - |   | 443 |   | - |
| Write off of negative goodwill        (note 2)                                          | (1,774) |   | - |   | - |
| Decrease (increase) in operating        assets, net of the effect of acquisitions:      |   |   |   |   |   |
| Restricted deposits                                                                     | (5,047) |   | 319 |   | (320) |
| Securities purchased under        agreement to resell                                   | - |   | 23,500 |   | 51,060 |
| Deposits with clearing        organizations                                             | 4,080 |   | (1,769) |   | 38 |
| Receivable from brokers and        clearing organizations                               | (391,400) |   | 37,463 |   | 6,110 |
| Receivable from customers                                                               | 71,057 |   | (35,404) |   | 7,738 |
| Securities owned                                                                        | 699 |   | 1,524 |   | 11,701 |
| Other assets                                                                            | (7,899) |   | (6,116) |   | (3,244) |
| Increase (decrease) in operating        liabilities, net of the effect of acquisitions: |   |   |   |   |   |
| Drafts payable                                                                          | 1,031 |   | (5,842) |   | 1,699 |
| Securities sold under agreement to        repurchase                                    | - |   | (23,500) |   | (45,531) |
| Payable to brokers and clearing        organizations                                    | 341,531 |   | (42,938) |   | 12,999 |
| Payable to customers                                                                    | (26,044) |   | 63,853 |   | (673) |
| Securities sold, but not yet        purchased                                           | 685 |   | 498 |   | (10,508) |
| Accounts payable and other        liabilities                                           | (5,824) |   | (9,941) |   | (5,504) |
| Tax benefit from employee stock        options exercised                                | 915 |   | 614 |   | 237 |
| Income taxes payable                                                                    | 565 |   | (3,487) |   | (16,606) |
| Cash (used in) provided by operating        activities                                  | (3,240) |   | 22,341 |   | 53,569 |
| Cash flows from investing        activities:                                            |   |   |   |   |   |
| Purchase of Josephthal Group, Inc.,        net of cash acquired                         | - |   | 3,139 |   | - |
| Purchase of Grand Charter Group,        net of cash acquired                            | - |   | (1,789) |   |   |
| Purchase of Propp & Company,        net of cash acquired                            | - |   | - |   | (768) |
| Purchase of the business of        BUYandHOLD                                           | (2,297) |   | - |   | - |
| Proceeds from sale of exchange seat                                                     | 24 |   | - |   | - |
| Purchase of property, plant and        equipment                                        | (1,360) |   | (1,009) |   | (1,821) |
| Cash (used in) provided by investing        activities                                  | (3,633) |   | 341 |   | (2,589) |
| Cash flows from financing        activities:                                            |   |   |   |   |   |
| Cash dividends paid on Class A        non-voting and                                    |   |   |   |   |   |
| Class B shares                                                                          | (4,509) |   | (4,443) |   | (3,758) |
| Issuance of Class A non-voting        shares                                            | 3,503 |   | 4,723 |   | 948 |
| Repurchase of Class A non-voting        shares for                                      |   |   |   |   |   |
| Cancellation                                                                            | (3,289) |   | (149) |   | (3,916) |
| Increase (decrease) in bank call        loans                                           | 3,066 |   | (13,265) |   | (40,423) |
| Cash (used in) financing activities                                                     | (1,229) |   | (13,134) |   | (47,149) |
| Net (decrease) increase in cash and        cash equivalents                             | (8,102) |   | 9,548 |   | 3,831 |
| Cash and cash equivalents,        beginning of year                                     | 24,217 |   | 14,669 |   | 10,838 |
| Cash and cash equivalents, end of        year                                           | $16,115 |   | $24,217 |   | $14,669 |
| The        accompanying notes are an integral part of these        financial statements |

F7

FAHNESTOCK VINERHOLDINGS INC.

Notes toConsolidated Financial Statements

(Expressed in U.S.dollars)

December 31, 2002

GENERAL

Fahnestock Viner Holdings Inc.(the "Company") is incorporated under the laws ofOntario. The Company's principal subsidiary, Fahnestock & Co.Inc. ("Fahnestock") is a member of the New York StockExchange, the American Stock Exchange and several other regionalexchanges in the United States. 

**1. Summary of significantaccounting policies**

These consolidated financialstatements have been prepared in conformity with accountingprinciples generally accepted in the United States of America forpurpose of inclusion in the Company’s annual report on Form10-K. In all material respects, they conform with accountingprinciples generally accepted in Canada, which have been used toprepare the consolidated financial statements for purposes ofinclusion in the Company’s annual report to shareholders.

The preparation of financialstatements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities anddisclosures of contingent assets and liabilities at the dates ofthe financial statements and the reported amounts of revenues andexpenses during the reporting periods. The most significantestimates are related to income taxes and contingencies. Actualresults could be materially different from these estimates.

Since operations are predominantlybased in the United States of America, these consolidatedfinancial statements are presented in U.S. dollars.

Certain prior period amounts havebeen reclassified to conform to the current presentation.

The following is a summary ofsignificant accounting policies followed in the preparation ofthese consolidated financial statements:

*(a) Basis of consolidation*

The consolidated financialstatements include the accounts of the Company and allsubsidiaries. The major subsidiaries, wholly-owned and operatedin the United States of America, are as follows:

> 
Fahnestock & Co. Inc.        -broker/dealer in securities

Freedom Investments, Inc.        -discount broker in securities

Significant intercompany balancesand transactions have been eliminated in the preparation of theconsolidated financial statements.

*(b) Brokerage operations*

Transactions in proprietarysecurities and related revenues and expenses are recorded on atrade date basis. Customers’ securities and commoditiestransactions are reported on a settlement date basis, which isgenerally three business days after trade date. Relatedcommission income and expense is recorded on a trade date basis.Securities owned and securities sold but not yet purchased arereported at market value generally based upon quoted prices.Realized and unrealized changes in market value are recognized innet trading revenues in the year in which the change occurs.Other financial instruments are carried at fair value or amountsthat approximate fair value.

F8

 

*(c) Cash and cash equivalents*

The Company defines cashequivalents as highly liquid investments with original maturitiesof less than 90 days that are not held for sale in the ordinarycourse of business.

*(d) Drafts payable*

Drafts payable represent amountsdrawn by the Company against a bank.

*(e) Goodwill –*

Goodwill arose upon theacquisitions of Fahnestock, Fahnestock International Inc., Firstof Michigan Capital Corporation, Josephthal Group, Inc., andGrand Charter Group Incorporated. Goodwill is subject to anannual test for impairment to determine if the fair value ofgoodwill of a reporting unit is less than its carrying amount.Goodwill has been tested for impairment as at December 31, 2002and no such impairment was recorded.

*(f) Property, plant andequipment*

Property, plant and equipment andexchange seats are stated at cost. Depreciation of furniture andfixtures is provided on the straight-line basis generally overthree to seven years. Leasehold improvements are amortized on astraight-line basis over the shorter of the life of the asset orthe life of the lease. 

*(g) Foreign currencytranslations*

Canadian currency balances havebeen translated into U.S. dollars as follows: monetary assets andliabilities at exchange rates prevailing at year end; revenue andexpenses at average rates for the year; and non-monetary assetsand share capital at historical rates.

*(h) Income taxes*

The Company accounts for incometaxes in accordance with Statement of Financial AccountingStandards No. 109, "Accounting for Income Taxes".Deferred income tax assets and liabilities arise from"temporary differences" between the tax basis of anasset or liability and its reported amount in the consolidatedfinancial statements. Deferred tax balances are determined byapplying the enacted tax rates.

*(i)Securities lendingactivities*

Securities borrowed and securitiesloaned are carried at the amounts of cash collateral advanced orreceived.

Securities borrowed transactionsrequire the Company to deposit cash or other collateral with thelender. The Company receives cash or collateral in an amountgenerally in excess of the market value of securities loaned.

The Company monitors the marketvalue of securities borrowed and loaned on a daily basis and mayrequire counterparties to deposit additional collateral or returncollateral pledged when appropriate.

Included in receivable frombrokers and clearing organizations are deposits paid forsecurities borrowed of $480,938,000 (2001 - $54,579,000).Included in payable to brokers and clearing organizations aredeposits received for securities loaned of $514,213,000 (2001 -$153,966,000).

*(j) Resale and repurchaseagreements*

Transactions involving purchasesof securities under agreements to resell ("reverserepurchase agreements") or sales of securities underagreements to repurchase ("repurchase agreements") aretreated as collateralized financing transactions and recorded attheir contractual resale or repurchase amounts plus accruedinterest.

F9

The Company obtains possession ofcollateral with a market value equal to or in excess of theprincipal amount loaned under reverse repurchase agreements.Collateral is valued daily, and adjusted when appropriate.

> 
*Revenues*

Investment banking fees arerecorded on offering date, sales concessions on settlement dateand underwriting fees at the time the transaction issubstantially completed and income is reasonably determinable.Management and investment advisory fees are recorded as earned.

*(l) Interest paid*

Included in interest paid isinterest on short-term bank loans, subordinated debt, payments inlieu of interest on securities loaned and interest paid withrespect to repurchase agreements.

*(m)**Stock-basedcompensation plans*

The Company has a stock-basedcompensation plan, which is described in note 6. No compensationexpense is recognized for this plan when stock options are issuedto employees. Any consideration paid by employees on the exerciseof stock options or purchase of stock is credited to sharecapital.

**2. Change in Accounting Policy**

*Goodwill and other intangibleassets*

In June 2001 the FinancialAccounting Standards Board issued Statement of AccountingStandards No.142, "Goodwill and Other Intangibles".Under this standard, goodwill is no longer to be amortized but issubject to a revised annual impairment test to identify anypotential goodwill impairment. A goodwill impairment loss will berecognized if the fair value of the goodwill of a reporting unitis less than its carrying amount. The standard also requires thatintangible assets with indefinite useful lives no longer beamortized, but be subject to an annual impairment test comparingfair values to carrying amounts.

The Company adopted this standardeffective January 1, 2002 without restatement of prior periods.In connection with the adoption of the new standard, theCompany’s recorded amount of goodwill of $11,957,000 is nolonger subject to amortization but is being periodically measuredfor impairment. Such impairment test was performed as at January1, 2002 and no impairment was recorded.

In addition, the standard requiresa write-off of unamortized "negative goodwill" in theamount of $1,774,000, which arose as a result of the acquisitionsof Hopper Soliday Corporation and subsidiaries, Reich & Co.,Inc. and Propp & Company Inc.. Negative goodwill representsthe excess fair value of net assets acquired above the cost ofacquisition. The write-off is recognized in the statement ofoperations as a gain from the cumulative effect of a change inaccounting principle. 

 

 

 

 

 

 

 

 

 

 

 

 

F10

The following table reflects theeffect of the amortization of goodwill on the results ofoperations as though FAS 142 had been adopted on January 1, 2001and 2000, respectively.

|                                                                                          | December 31, |
|-----------------------------------------------------------------------------------------------|--------------|
|                                                                                          | 2002         | 2001 | 2000 |
|                                                                                          |         |   |   |
| Profit        before cumulative effect of a change in accounting        principle as reported | $7,547       | $19,150 | $40,901 |
| Amortization        of goodwill as reported                                                   | -            | 432 | 464 |
| Profit        before cumulative effect of a change in accounting        principle as adjusted | 7,547        | 19,582 | 41,365 |
| Cumulative        effect of a change in accounting principle as reported                      | 1,774        | - | - |
| Net        profit as adjusted                                                                 | $9,321       | $19,582 | $41,365 |
|                                                                                          |         |   |   |
| Basic        earnings per share as reported                                                   | $0.75        | $1.55 | $3.38 |
| -        Before cumulative effect of a change in accounting        principle                  | $0.63        | $1.55 | $3.38 |
| -Cumulative        effect of a change in accounting principle                                 | $0.14        | - | - |
|                                                                                          |         |   |   |
| Diluted        earnings per share as reported                                                 | $0.73        | $1.50 | $3.29 |
|                                                                                          |         |   |   |
| Basic        earnings per share as adjusted                                                   | $0.75        | $1.59 | $3.42 |
| Diluted        earnings per share as adjusted                                                 | $0.73        | $1.53 | $3.33 |

 

*Recently issued accountingstandards*

The Financial Accounting StandardsBoard issued SFAS No. 146, "Accounting for Costs Associatedwith Exit or Disposal Activities", FIN No. 45,"Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness ofOthers", and FIN No. 46, "Consolidation of VariableInterest Entities". The Company is reviewing this statementand these interpretations and does not expect their adoption tohave a material impact on its financial results. SFAS No. 148,"Accounting for Stock-Based Compensation – Transitionand Disclosure" is being reviewed but the Company does notintend to adopt this standard in fiscal 2003.

**3. Restricted deposits**

Deposits of $7,440,000 (2001 -$2,393,000) were held at year-end in a special reserve bankaccounts for the exclusive benefit of customers in accordancewith regulatory requirements. To the extent permitted, thesedeposits are invested in interest bearing accounts collateralizedby qualified securities.

 

 

 

 

 

 

 

 

 

 

 

 

F11

**4. Securities owned andSecurities sold, but not yet purchased (at fair market value)**

|                                                                                              | 2002        |   | 2001        |
|---------------------------------------------------------------------------------------------------|-------------|--------|-------------|
| Securities        owned consist of:                                                               |        |   |        |
| Corporate        equities                                                                         | $11,467,000 |   | $19,268,000 |
| Corporate        and sovereign debt                                                               | 16,522,000  |   | 12,931,000  |
| U.S.        government and agency and state and municipal government        obligations           | 22,103,000  |   | 15,833,000  |
| Money        market funds                                                                         | -           |   | 2,540,000   |
| Options        and other                                                                          | 81,000      |   | 3,000       |
|                                                                                              | $50,173,000 |   | $50,575,000 |
|                                                                                              |        |   |        |
| Securities        sold, but not yet purchased consist of:                                         |        |   |        |
| Corporate        equities                                                                         | $5,049,000  |   | $4,057,000  |
| Corporate        debt                                                                             | 3,935,000   |   | 4,683,000   |
| U.S.        government and agency and state and municipal government        obligations and other | 622,000     |   | 181,000     |
|                                                                                              | $9,606,000  |   | $8,921,000  |

Securities owned and Securitiessold, but not yet purchased, consists of trading and investmentsecurities at fair market values. At December 31, 2002, theCompany has pledged securities owned of approximately $1,078,000($176,000 in 2001) as collateral to counterparties for securitiesloan transactions, which can be sold or repledged. 

**5. Property, plant andequipment**

|                                     |                                            |                     | 2002           | 2001           |
|------------------------------------------|-------------------------------------------------|--------------------------|----------------|----------------|
|                                     | (Expressed in        thousands of U.S. dollars) |
|                                     | Cost                                            | Accumulated depreciation | Net book value | Net book value |
| Furniture,        fixtures and equipment | $26,321                                         | $18,926                  | $7,395         | $8,458         |
| Leasehold        improvements            | 5,534                                           | 4,441                    | 1,093          | 1,534          |
|                                     | $31,855                                         | $23,367                  | $8,488         | $9,992         |

Accumulated depreciation as atDecember 31, 2001 was $18,503,000.

 

**6. Bank call loans**

Bank call loans, primarily payableon demand, bear interest at various rates but not exceeding thebroker call rate, which was 3% at December 31, 2002. These loansand certain unused lines, collateralized by firm and customersecurities with market values of approximately $21,937,000 and$10,811,000, respectively, at December 31, 2002 are primarilywith two U.S. money center banks. Details of the bank call loansare as follows:

 

 

 

 

 

F12

|                                                        | 2002        | 2001        | 2000         |
|-------------------------------------------------------------|-------------|-------------|--------------|
| Year-end        balance                                     | $16,200,000 | $13,134,000 | $25,899,000  |
| Weighted        interest rate (at end of year)              | 1.38%       | 2.07%       | 7.09%        |
| Maximum        balance (at any month end)                   | $49,281,000 | $37,666,000 | $170,406,000 |
| Average        amount outstanding (during the year) (1)     | $19,760,000 | $12,836,000 | $77,579,000  |
| Weighted        average interest rate (during the year) (2) | 2.10%       | 4.80%       | 7.86%        |

(1) The average amount outstandingduring the year was computed by adding amounts outstanding at theend of each month and dividing by twelve.

(2) The weighted average interest rate during the year wascomputed by dividing the actual interest expense by the averagebank call loans outstanding at the end of each month.

Aggregate interest paid by theCompany on a cash basis during the years ended December 31, 2002,2001, and 2000 was $6,473,000, $9,709,000 and $33,061,000,respectively.

**7. Share capital**

The Company's authorized sharecapital, all of which is without par value, consists of (a) anunlimited number of first preference shares issuable in series;(b) an unlimited number of Class A non-voting shares; and (c)99,680 Class B voting shares.

The Class A non-voting and theClass B voting shares are equal in all respects except that theClass A non-voting shares are non-voting.

The Company's issued andoutstanding share capital is as follows (no first preferenceshares have been issued):

|                                                                                           | 2002        |   | 2001        |   | 2000        |
|------------------------------------------------------------------------------------------------|-------------|--------|-------------|--------|-------------|
| 12,397,007        (12,337,085 in 2001 and 11,990,969 in 2000) Class A        non-voting shares | $34,338,000 |   | $34,124,000 |   | $29,550,000 |
| 99,680        Class B voting shares                                                            | 133,000     |   | 133,000     |   | 133,000     |
|                                                                                           |        |   |        |   |        |
|                                                                                           | $34,471,000 |   | $34,257,000 |   | $29,683,000 |

Under the Company’s 1996Equity Incentive Plan as amended February 28, 2002("EIP"), the compensation and stock option committee ofthe board of directors of the Company may grant options topurchase Class A Shares to officers and key employees of theCompany and its subsidiaries. Grants of options are made to theCompany’s independent directors on a formula basis. Optionsare generally granted for a five-year term and generally vest atthe rate of 25% of the amount granted for each year held. Theaggregate number of Class A non-voting shares that are availableunder the EIP is 3,815,000.

 

 

 

 

 

F13

 

 

|                                          | 2002             | 2001                            |
|-----------------------------------------------|------------------|---------------------------------|
|                                          | Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price |
|                                          |             |                            |   |   |
| Options        outstanding, beginning of year | 1,907,503        | $17.36                          | 1,640,024 | $15.46 |
| Options        granted                        | 383,128          | $27.14                          | 663,160 | $24.05 |
| Options        exercised                      | (211,322)        | $16.57                          | (352,216) | $13.41 |
| Options        forfeited                      | (100,350)        | $26.35                          | (43,465) | $18.21 |
| Options        outstanding, end of year       | 1,978,959        | $20.16                          | 1,907,503 | $17.36 |
| Options        vested, end of year            | 462,185          | $16.13                          | 304,896 | $12.93 |

The following table summarizesstock options outstanding and exercisable as at December 31,2002.

| Range of exercise prices | Number outstanding | Weighted average remaining        contractual life | Weighted average exercise price

of        outstanding

options | Number exercisable

(vested) | Weighted average exercise price of

vested

options |
|--------------------------|--------------------|----------------------------------------------------|-----------------------------------------------------------------|------------------------------|-----------------------------------------------------|
|                     |               |                                               |                                                            |                         |                                                |
| $13.875-$19.875          | 1,000,311          | 1.27 Years                                         | $15.66                                                          | 455,185                      | $16.04                                              |
| $19.875-$28.75           | 978,648            | 3.63 Years                                         | $24.86                                                          | 7,000                        | $21.50                                              |
|                     |               |                                               |                                                            |                         |                                                |
| $13.875-$28.75           | 1,978,959          | 2.41 Years                                         | $20.16                                                          | 462,185                      | $16.13                                              |

The Company has not issued anyClass A non-voting shares from Treasury to the Company's 401(k)plan during the last three fiscal years ended December 31, 2002.

In 2002, the Company paid cashdividends to holders of Class A non-voting and Class B shares asfollows ($0.36 in 2001 and $0.31 in 2000):

Dividend per share Record DatePayment Date

$0.09 February 8, 2002 February22, 2002

$0.09 May 3, 2002 May 17, 2002

$0.09 August 2, 2002 August 16,2002

$0.09 November 8, 2002 November22, 2002

The Company may purchase up to620,700 Class A non-voting shares by way of a Normal CourseIssuer Bid through the facilities of The Toronto Stock Exchangeand/or the New York Stock Exchange. During the year endedDecember 31, 2002, the Company purchased 151,400 Class Anon-voting shares for a total consideration of $3,289,000, ofwhich 86,100 Class A non-voting shares were purchased pursuant toa Normal Course Issuer Bid which expired on July 4, 2002 and65,300 Class A non-voting shares were purchased pursuant to aNormal Course Issuer Bid which expires July 8, 2003, unlessterminated earlier (6,100 shares for $149,000 in 2001 and 244,600shares for $3,916,000 in 2000).

**8. Contributed capital**

Contributed capital represents thetax benefit on the difference between market price and exerciseprice on employee stock options exercised.

F14

**9. Income taxes**

The income tax provision shown inthe consolidated statement of operations is reconciled to amountsof tax that would have been payable (recoverable) from theapplication of combined federal, state, provincial and local taxrates to pre-tax profit as follows:

 

|                                                                          | 2002        | 2001        | 2000        |
|-------------------------------------------------------------------------------|-------------|-------------|-------------|
|                                                                          |        |        |        |
| Profit        before income tax                                               | $12,917,000 | $31,612,000 | $71,712,000 |
|                                                                          |        |        |        |
| U.S.        federal tax at 35%                                                | $4,524,000  | $11,092,000 | $25,110,000 |
| Canadian        tax at 44%                                                    | 74,000      | -           | -           |
| Combined        state and local tax, net of federal benefit                   | 653,000     | 1,977,000   | 5,846,000   |
| Income        taxes before under-noted                                        | 5,251,000   | 13,069,000  | 30,956,000  |
| Tax        effect of non-taxable interest and dividends                       | (148,000)   | (143,000)   | (258,000)   |
| Tax        effect of differences between accounting and taxable        income | 267,000     | (464,000)   | 113,000     |
| Income        taxes                                                           | $5,370,000  | $12,462,000 | $30,811,000 |
|                                                                          |        |        |        |
| Profit        before income tax provision:                                    |        |        |        |
| Canadian        operations                                                    | $(10,000)   | $(78,000)   | $(32,000)   |
| U.S.        operations                                                        | $12,927,000 | $31,690,000 | $71,744,000 |

Income taxes included in theconsolidated statements of income represent the following:

|                       | December 31, |
|----------------------------|--------------|
|                       | 2002         |   | 2001 |   | 2000 |
| Current:                   |         |   |   |   |   |
| Canadian        tax        | $74,000      |   | - |   | - |
| U.S.        Federal tax    | 5,176,000    |   | $9,878,000 |   | $22,767,000 |
| State        and local tax | 1,226,000    |   | 3,157,000 |   | 9,231,000 |
|                       | 6,476,000    |   | 13,035,000 |   | 31,998,000 |
| Deferred:                  |         |   |   |   |   |
| U.S.        Federal tax    | (885,000)    |   | (458,000) |   | (950,000) |
| State        and local tax | (221,000)    |   | (115,000) |   | (237,000) |
|                       | (1,106,000)  |   | (573,000) |   | (1,187,000) |
|                       | $5,370,000   |   | $12,462,000 |   | $30,811,000 |

Aggregate deferred income taxassets, which relate primarily to fixed assets and currentlynon-deductible expenses, are included in other assets andamounted to approximately $5,966,000 ($4,142,000 in 2001).

On a cash basis, the Company paidincome taxes for the years ended December 31, 2002, 2001 and 2000in the amounts of $8,411,000, $14,918,000 and $46,163,000,respectively.

**** 

**10. Earnings per share**

Basic earnings per share wascomputed by dividing net profit by the weighted average number ofClass A non-voting and Class B shares outstanding. Dilutedearnings per share includes the weighted average Class Anon-voting and Class B shares outstanding and the effects ofClass A non-voting share options using the treasury stock method.

F15

 

Earnings per share has beencalculated as follows:

|                                                                         | 2002       |   | 2001        |   | 2000        |
|------------------------------------------------------------------------------|------------|--------|-------------|--------|-------------|
| Basic        weighted average number of shares outstanding                   | 12,429,264 |   | 12,348,051  |   | 12,108,798  |
| Stock        options                                                         | 280,278    |   | 421,783     |   | 308,053     |
| Diluted        common shares                                                 | 12,709,542 |   | 12,769,834  |   | 12,416,851  |
|                                                                         |       |   |        |   |        |
| Net        profit                                                            | $9,321,000 |   | $19,150,000 |   | $40,901,000 |
|                                                                         |       |   |        |   |        |
| Basic        profit per share                                                | $0.75      |   | $1.55       |   | $3.38       |
| -        Before cumulative effect of a change in accounting        principle | $0.61      |   | $1.55       |   | $3.38       |
| -        Cumulative effect of a change in accounting principle               | $0.14      |   | -           |   | -           |
|                                                                         |       |   |        |   |        |
| Diluted        profit per share                                              | $0.73      |   | $1.50       |   | $3.29       |

 

***Stock-based compensation***

Financial Accounting StandardsBoard Statement No. 123, "Accounting for Stock-BasedCompensation" (SFAS 123) was issued in 1995 and changed themethod of accounting for stock compensation plans similar tothose of the Company. Adoption of SFAS 123’s fair valuerecognition method is optional. The Company has chosen tocontinue to apply Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees", and relatedinterpretations in accounting for its stock compensation plans.The Company is reviewing SFAS No. 148, "Accounting forStock-Based Compensation – Transition and Disclosure",which was issued in 2002, and has adopted the disclosureprovisions but does not intend to adopt other provisions of thisstandard in 2003.

In accordance with SFAS 123, thefollowing presents the pro forma income and earnings per shareimpact, using a fair value calculation, of the Company’sstock-based compensation. Amounts are expressed in thousands ofU.S. dollars, except per share amounts.

|                                                                                    | Year ended        December 31, |
|-----------------------------------------------------------------------------------------|--------------------------------|
|                                                                                    | 2002                           | 2001 | 2000 |
| Net        profit as reported                                                           | $9,321                         | $19,150 | $40,901 |
| Stock-based        employee compensation expense included in reported net        income | -                              | - | - |
| Additional        compensation expense                                                  | 1,906                          | 1,843 | 1,383 |
| Pro        forma net profit                                                             | $7,415                         | $17,307 | $39,518 |
|                                                                                    |                           |   |   |
| Basic        profit per share as reported                                               | $0.75                          | $1.55 | $3.38 |
| Diluted        profit per share as reported                                             | $0.73                          | $1.50 | $3.29 |
|                                                                                    |                           |   |   |
| Pro        forma basic profit per share                                                 | $0.60                          | $1.40 | $3.26 |
| Pro        forma diluted profit per share                                               | $0.59                          | $1.36 | $3.18 |

For purposes of the pro formapresentation, the Company determined fair value using theBlack-Scholes option pricing model with the following weightedaverage assumptions for grants in fiscal 2002, 2001 and 2000,respectively: expected dividend yields of 1.4%, 1.4% and 1.5%;risk-free 

F16

interest rates ranging from 3.75%to 4.55%, 3.76% to 5.07%, and 5.11% to 6.80%; expected volatilityranging from 27% to 28%, 27% to 29%, and 21% to 29%; and expectedlife of 5 years. The weighted average fair value of optionsgranted during 2002, 2001 and 2000, respectively was $1,946,000,$3,741,000 and $952,000. The fair value is being amortized overfive years on an after-tax basis, where applicable for purposesof pro forma presentation. Stock options generally expire fiveyears after the date of grant or three months after the date ofretirement, if earlier. Stock options generally vest over a fiveyear period with 0% in year one, 25% of the shares becomingexercisable on each of the next three anniversaries of the grantdate and the balance vesting in the last six months of the optionlife. The vesting period is at the discretion of the Compensationand Stock Option Committee and is determined at the time ofgrant.

The calculation of fair value inthis pro forma presentation are not indicative of future amountsbecause it does not take into consideration future grants, anydifference between actual and assumed forfeitures.

**11. Commitments andcontingencies**

> 
The Company and its    subsidiaries have operating leases for office space and    capital leases for equipment expiring at various dates    through 2013. Future minimum rental commitments under such    office and equipment leases as at December 31, 2002 are as    follows:

| 2003                       | $15,000,000 |
|----------------------------|-------------|
| 2004                       | 12,024,000  |
| 2005                       | 9,774,000   |
| 2006                       | 9,060,000   |
| 2007        and thereafter | 38,149,000  |
| Total                      | $84,007,000 |

Certain of the leases containprovisions for rent escalation based on increases in costsincurred by the lessor.

(b) The Company's rent expense forthe years ended December 31, 2002, 2001 and 2000 was $14,108,000,$10,909,000 and $8,233,000, respectively.

(c) The Company, through itssubsidiaries, maintains a defined contribution plan coveringsubstantially all full-time U.S. employees. The Fahnestock planprovides that Fahnestock may make discretionary contributions.For certain employees who were formerly employed by First ofMichigan Corporation ("FOM"), contributions are made inaccordance with the terms of the plan document.

FOM sponsors an unfundedSupplemental Executive Retirement Program ("SERP"),which is a non-qualified plan that provides certain formerofficers additional retirement benefits. Benefits payable underthe SERP were approximately $1,337,000 at December 31, 2002.

The Company made contributions tothe plans of $1,398,000, $1,525,000 and $2,503,000 in 2002, 2001and 2000, respectively.

(d) On November 30, 2000 theCompany established an Executive Deferred Compensation Plan("EDCP") in order to offer to certain qualifiedhigh-performing financial consultants, a bonus based upon aformula reflecting years of service, gross commissions and avaluation of their clients’ assets. The bonus amountscalculated with respect to fiscal 2002 total approximately$966,000 ($1,270,000 in 2001, $900,000 in 2000) and will normallyvest five years from the end of the related fiscal year. Theliability is being recognized on a straight-line basis over thevesting period. The amount expensed in 2002 was $373,000.

 

F17

 

(e) At December 31, 2002, theCompany has collateralized and uncollateralized letters of creditfor $34,500,000. Collateral for these letters of credit includemarketable securities of approximately $17,521,000, pledged toone financial institution. 

(f) The Company is involved incertain litigation arising in the ordinary course of business.Management believes, based upon discussions with legal counsel,that the outcome of this litigation will not have a materialeffect on the Company's financial position. The materiality oflegal matters to the Company's future operating results dependson the level of future results of operations as well as thetiming and ultimate outcome of such legal matters.

(g) The Company's majorsubsidiaries, Fahnestock and Freedom, are subject to the uniformnet capital requirements of the Securities and ExchangeCommission ("SEC") under Rule 15c3-1 (the"Rule"). Fahnestock computes its net capitalrequirements under the alternative method provided for in theRule which requires that Fahnestock maintain net capital equal totwo percent of aggregate customer related debit items, as definedin SEC Rule 15c3-3. At December 31, 2002, Fahnestock had netcapital of $156,105,000, which was $147,310,000 in excess of the$8,795,000 required to be maintained at that date. Freedomcomputes its net capital requirement under the basic methodprovided for in the Rule which requires that Freedom maintain netcapital equal to the greater of $250,000 or 6 2/3% of aggregateindebtedness, as defined. At December 31, 2002, Freedom had netcapital of $2,877,000, which was $2,627,000 in excess of the$250,000 required to be maintained at that date.

(h) In accordance with theSecurities and Exchange Commission’s No Action Letter datedNovember 3, 1998, the Company has computed a reserve requirementfor the proprietary accounts of introducing firms as of December31, 2002. The Company had no deposit requirements as of December31, 2002.

**** 

> 
**12. Financial        instruments with off-balance sheet risk and concentration        of credit risk**

In the normal course of business,the Company's securities activities involve execution, settlementand financing of various securities transactions for customers.These activities may expose the Company to risk in the eventcustomers, other brokers and dealers, banks, depositories orclearing organizations are unable to fulfill their contractualobligations.

The Company is exposed tooff-balance sheet risk of loss on unsettled transactions in theevent customers and other counterparties are unable to fulfilltheir contractual obligations. It is the Company's policy toperiodically review, as necessary, the credit standing of eachcounterparty with which it conducts business.

Securities sold, but not yetpurchased represent obligations of the Company to deliver thespecified security at the contracted price and thereby create aliability to repurchase the security in the market at prevailingprices. Accordingly, these transactions result inoff-balance-sheet risk, as the Company's ultimate obligation tosatisfy the sale of securities sold, but not yet purchased mayexceed the amount recognized on the balance sheet. Securitiespositions are monitored on a daily basis.

The Company's customer financingand securities lending activities require the Company to pledgecustomer securities as collateral for various financing sourcessuch as bank loans and securities lending. At December 31, 2002,the Company had approximately $581 millionof customer securities under customer margin loansthat are available to be pledged of which the Company hasrepledged approximately $64,854,000 under securities loanagreements. In addition, the Company has received collateral ofapproximately $462,806,000 under securities

F18

borrow agreementsof which the Company has repledged approximately $446,956,000 ascollateral under securities loans agreements. Included inreceivable from brokers and clearing organizations arereceivables from three major U.S. broker-dealers totaling$260,977,000.

The Company monitors the marketvalue of collateral held and the market value of securitiesreceivable from others. It is the Company's policy to request andobtain additional collateral when exposure to loss exists. In theevent the counterparty is unable to meet its contractualobligation to return the securities, the Company may be exposedto off-balance sheet risk of acquiring securities at prevailingmarket prices. 

As part of its trading strategy,the Company uses derivative financial instruments from time totime. Included in net revenues from principal transactions forthe year ended December 31, 2002 were net gains from derivativesof approximately $710,000.

At December 31, 2002 the Companyhad outstanding commitments to buy and sell of $4,667,000 and$1,160,000, respectively, of mortgage-backed securities on a whenissued basis. These commitments have off-balance sheet riskssimilar to those described above.

**13. Acquisitions**

> 
On March 12, 2002, through        its wholly-owned subsidiary, Freedom Investments, Inc.,        the Company acquired the business operated by BUYandHOLD        Securities Corporation and affiliates for cash        consideration of $2,297,000. BUYandHOLD is an online        brokerage business headquartered in Edison, NJ, which        provides its customers with a dollar-based investing        platform. BUYandHOLD operates as a division of Freedom        Investments, Inc. and its results since the date of        acquisition have been included in these consolidated        financial statements. The acquisition furthers the        Company’s growth and expansion and adds to its        client base, as well as providing additional managerial        expertise. The acquisition was accounted for by the        purchase method. The following table summarizes the        estimated fair value of assets acquired.

| Securities owned,                at market value | $297,000   |
|--------------------------------------------------|------------|
| Furniture,                fixtures and equipment | 2,000,000  |
| Purchase price                paid               | $2,297,000 |

Presented below are unaudited proforma consolidated results of operations. Amounts presented for2002 and 2001 give effect to the acquisition of the business ofBUYandHOLD Securities Corporation and affiliates as if thetransaction was consummated as at January 1, 2001. The pro formainformation is for comparative purposes only and is notindicative either of the actual results that would have occurredif the acquisition had been consummated at the beginning of theperiod presented, or of future operations of the combinedcompanies. The Company has realized significant cost savings as aresult of the consolidation of the operations of BUYandHOLD withthe Company’s business, which is not reflected in this proforma presentation. The BUYandHOLD division has generated apositive contribution to consolidated net profit since theconversion of its client accounts to the Fahnestock platform inSeptember 2002.

| (Unaudited)                              | Year ended

December        31, |
|------------------------------------------|---------------------------------|
| Expressed        in thousands of dollars | 2002                            | 2001 |
|                                     |                            |   |
| Revenue                                  | $285,511                        | $270,479 |
| Profit        before tax from operations | $11,851                         | $23,607 |
| Net        profit                        | $7,903                          | $13,692 |
| Basic        earnings per share          | $0.64                           | $1.11 |
| Diluted        earnings per share        | $0.62                           | $1.07 |

**F19**

**14. Related Party Transactions**

The Company has notes and accountsreceivable for employees, net, of approximately $17,012,000 atDecember 31, 2002. These amounts will be forgiven over athree-year service period from the initial date of the loan andare contingent on their continued employment with the Company.The unamortized portion of the notes become due on demand in theevent the employee departs during the service period.

At December 31, 2002, Fahnestockhas an outstanding guarantee of debt of approximately $6,200,000that arose as a result of the acquisition of Josephthal Group,Inc.

**15. Segment Information**

The Company has determined itsreportable segments based on the Company’s method ofinternal reporting, which disaggregates its retail business bybranch and its proprietary and investment banking businesses byproduct. The Company’s segments are: Private Client whichincludes all business generated by the Company’s 89branches, including commission and fee income earned on clienttransactions, net interest earnings on client margin loans andcash balances, stock loan activities and financing activities;Capital Markets which includes market-making activities inover-the-counter equities, institutional trading in both fixedincome and equities, structured assets transactions, bondtrading, trading in mortgage-backed securities, corporateunderwriting activities, public finance activities, and syndicateparticipation; and Asset Management which includes fees frommoney market funds and the investment management services ofFahnestock’s asset management divisions employing variousprograms to professionally manage client assets either inindividual accounts or in funds. The Company evaluates theperformance of its segments and allocates resources to them basedupon profitability.

In connection with the analysisdone in conjunction with the adoption of SFAS No. 142, theCompany has made changes to its reportable segments. Prior yearresults have been restated based on the composition of the newsegments.

The table below presentsinformation about the reported revenue and operating income(profit before income taxes) of the Company for the years endedDecember 31, 2002, 2001 and 2000. The Company’s business ispredominantly in the U.S. Asset information by reportable segmentis not reported, since the Company does not produce suchinformation for internal use.

|                     | Year ended        December 31, |
|--------------------------|--------------------------------|
|                     | 2002                           | 2001 | 2000 |
| Revenue:                 |                           |   |   |
| Private        Client    | $189,796,000                   | $171,588,000 | $215,515,000 |
| Capital        Markets   | 73,005,000                     | 73,752,000 | 82,700,000 |
| Asset        Management  | 17,497,000                     | 15,266,000 | 13,347,000 |
| Other                    | 3,035,000                      | 655,000 | 4,937,000 |
|                     |                           |   |   |
| Total                    | $283,333,000                   | $261,261,000 | $316,499,000 |
|                     |                           |   |   |
| Operating        Income: |                           |   |   |
| Private        Client    | $(12,488,000)                  | $9,924,000 | $30,722,000 |
| Capital        Markets   | 14,418,000                     | 12,835,000 | 26,537,000 |
| Asset        Management  | 13,219,000                     | 10,512,000 | 8,168,000 |
| Other                    | (2,232,000)                    | (1,659,000) | 6,285,000 |
|                     |                           |   |   |
| Total                    | $12,917,000                    | $31,612,000 | $71,712,000 |

F20

* Losses in the Private Clientsegment are the result of unfavorable market conditions as wellas operating losses and acquisition costs relating to Josephthal,Prime Charter and BUYandHOLD and include litigation, settlementcosts, retention and severance costs and the costs ofunder-utilized facilities.

**16. Subsequent events**

(a) Dividend

On January 24, 2003, a cashdividend of U.S.$0.09 per share (totalling $1,149,000) wasdeclared payable on February 28, 2003 to Class A non-voting andClass B shareholders of record on February 14, 2003.

(b) Acquisition 

On January 3, 2003, the Companyacquired the U.S. Private Client Division of CIBC World Markets("World Markets") from the Canadian Imperial Bank ofCommerce ("CIBC") and agreed to complete, at a laterdate, the acquisition of the U.S. Asset Management Division ofWorld Markets. The Private Client Division employs approximately620 brokers in 18 branch offices located across the UnitedStates. Client assets at December 31, 2002 were approximately $30billion. The acquisition more than doubles theCompany’s private client presence and provides managerialexpertise to the organization. The acquisition will be accountedfor by the purchase method. The Company has engaged anindependent valuator to identify and value tangible andintangible acquired.

The aggregate purchase price ofapproximately $241 million was paid as follows:

| $13        million  | paid        by Fahnestock in cash at closing from cash on hand                                                                                                                        |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| $2        million   | will        be paid by Fahnestock in cash upon completion of the        acquisition of the Asset Management Division from cash on        hand                                         |
| $65        million  | was        paid with the proceeds of the issuance by Viner Finance        Inc, a wholly-owned subsidiary of the Company, to World        Markets of a zero coupon promissory note (i) |
| $161        million | was        paid with the proceeds of debentures issued by E.A. Viner        International Co., a wholly-owned subsidiary of the        Company, to CIBC (ii)                          |

> 
(i)            The zero coupon promissory note matures in five years            and is repayable as underlying employee loans            receivable of approximately $65 million which were            assigned to Viner Finance Inc. by World Markets            become due. Such payments are to be made            notwithstanding whether any of the employees’            loans default.

(ii)            Two debentures were issued. The first exchangeable            debenture, in the principal amount of approximately            $70 million, is exchangeable for approximately 3.1            million Class A Shares of the Company at the rate of            $23.20 per share. The first exchangeable debenture            matures in ten years, and bears interest at an annual            rate of interest of 3% in the first year, 4% in years            two through four, and 5% in years five through            maturity. The convertible debenture, in the principal            amount of approximately $91 million, is convertible            into a second exchangeable debenture on the same            terms as the first exchangeable debenture, subject to            approval of the Company’s Class A and Class B            shareholders at the May 12, 2003 annual meeting. If            shareholder approval is not obtained, the convertible            debenture will mature in three years and will bear            interest at 9.75% per annum from the date of January            6, 2003.

 

F21

> 
(iii)            In addition, the Company has entered into a credit            arrangement with CIBC wherein it has borrowed $25            million and may borrow a further $25 million, as            required, to finance retention loans to the new            employees.

 

(c ) Arbitration Award

In January 2003 the Companyreceived monetary damages plus interest in the amount of$21,750,000 pursuant to an award by a National Association ofSecurities Dealers Dispute Resolution Panel against anotherbroker-dealer in a raiding case involving the sales force ofFirst of Michigan Corporation, a company acquired by Fahnestockin July 1997. These proceeds, which have been received, will beincluded in the Company’s results for the first quarter of2003.

**17. Quarterly Information(unaudited)**

(Expressed in thousands ofdollars, except per share amounts)

|                                                                                   | **Fiscal        Quarters** |
|----------------------------------------------------------------------------------------|----------------------------|
| **Year        ended December 31, 2002**                                                | **Fourth**                 | **Third** | **Second** | **First** | **Total** |
| Revenue                                                                                | $76,150                    | $68,522 | $68,144 | $70,517 | $283,333 |
| Operating        profit before income taxes                                            | $5,614                     | $2,785 | $1,912 | $2,606 | $12,917 |
| Cumulative        effect of a change in accounting principles                          | -                          | - | - | $1,774 | $1,774 |
| Net        profit                                                                      | $3,297                     | $1,735 | $883 | $3,406 | $9,321 |
| Earnings        per share:                                                             |                       |   |   |   |   |
| Basic                                                                                  | $0.27                      | $0.14 | $0.07 | $0.27 | $0.75 |
| -        Operations                                                                    | $0.27                      | $0.14 | $0.07 | $0.13 | $0.61 |
| -        Cumulative effect of a change in                                              |                       |   |   |   |   |
| accounting        principles                                                           | -                          | - | - | $0.14 | $0.14 |
| Diluted                                                                                | $0.26                      | $0.14 | $0.07 | $0.26 | $0.73 |
| Dividends        per share                                                             | $0.09                      | $0.09 | $0.09 | $0.09 | $0.36 |
| Market        price of Class A Shares:                                                 |                       |   |   |   |   |
| High                                                                                   | $28.45                     | $23.15 | $25.70 | $28.88 | $28.88 |
| Low                                                                                    | $19.77                     | $20.00 | $21.26 | $24.85 | $19.77 |
|                                                                                   |                       |   |   |   |   |
| **Year        ended December 31, 2001**                                                |                       |   |   |   |   |
| Revenue                                                                                | $77,142                    | $53,748 | $56,876 | $73,495 | $261,261 |
| Profit        before income taxes                                                      | $3,484                     | $5,657 | $6,851 | $15,620 | $31,612 |
| Net        profit                                                                      | $2,780                     | $3,334 | $3,919 | $9,117 | $19,150 |
| Earnings        per share:                                                             |                       |   |   |   |   |
| Basic                                                                                  | $0.22                      | $0.27 | $0.32 | $0.74 | $1.55 |
| Diluted                                                                                | $0.22                      | $0.26 | $0.30 | $0.71 | $1.50 |
| Dividends        per share                                                             | $0.09                      | $0.09 | $0.09 | $0.09 | $0.36 |
| Market        price of Class A Shares:                                                 |                       |   |   |   |   |
| High                                                                                   | $28.35                     | $28.40 | $29.25 | $27.60 | $29.25 |
| Low                                                                                    | $23.15                     | $24.30 | $24.75 | $22.00 | $22.00 |
|                                                                                   |                       |   |   |   |   |
| The        price quotations above were supplied by the New York        Stock Exchange. |

 

 

F22

EXHIBIT INDEX

Unless designated by an asterisk indicatingthat such document has been filed herewith, the Exhibits listedbelow have been heretofore filed by the Company pursuant toSection 13 or 15(d) of the Exchange Act and are herebyincorporated herein by reference to the pertinent prior filing.

| Number       | Description                                                                                                                                                                                                                                                                                                                                                                                        | Page   |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 2.1          | Asset        Purchase Agreement dated as of December 9, 2002 and        Amendment No. 1 to the Asset Purchase Agreement dated as        of January 2, 2003, by and among Fahnestock Viner        Holdings Inc., Viner Finance Inc., Canadian Imperial Bank        of Commerce and CIBC World Markets Corp. (previously        filed as an exhibit to Form 8-K dated January 17, 2003).             |   |
| 2.2          | Asset        Management Acquisition Agreement dated as of January 2,        2003, by and among Fahnestock Viner Holdings Inc.,        Fahnestock & Co. Inc., Canadian Imperial Bank of        Commerce and CIBC World Markets Corp. (previously filed        as an exhibit to Form 8-K dated January 17, 2003).                                                                                |   |
| 3        (a) | Articles        of Incorporation, as amended, of Fahnestock Viner        Holdings Inc. (previously filed as exhibits to Form 20-F        for the fiscal year ended December 31, 1986 and 1988).                                                                                                                                                                                                    |   |
| 3(b)         | By-Laws,        as amended, of Fahnestock Viner Holdings Inc. (previously        filed as an exhibit to Form 20-F for the fiscal year        ended December 31, 1987).                                                                                                                                                                                                                             |   |
| 4.1          | Stakeholders        Agreement dated December 9, 2002, by and among Fahnestock        Viner Holdings Inc., Canadian Imperial Bank of Commerce,        Albert G. Lowenthal, Phase II Financial L.P., Phase II        Financial Limited, The Albert G. Lowenthal Foundation,        Olga Roberts and Elka Estates Limited (previously filed        as an exhibit to Form 8-K dated January 17, 2003). |   |
| 4.2          | Registration        Rights Agreement dated January 2, 2003, by and between        Fahnestock Viner Holdings Inc. and Canadian Imperial Bank        of Commerce (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                                                                                                                         |   |
| 4.3          | Exchangeable        Debenture dated January 6, 2003, by and between E. A.        Viner International Co. and Canadian Imperial Bank of        Commerce (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                                                                                                                                 |   |
| 4.4          | Interim        Exchangeable Debenture dated January 6, 2003, by and        between E. A. Viner International Co. and Canadian        Imperial Bank of Commerce (previously filed as an exhibit        to Form 8-K dated January 17, 2003).                                                                                                                                                         |   |
| 10(f)        | Fahnestock        Viner Holdings Inc. 1996 Equity Incentive Plan, Amended        and Restated as at May 17, 1999 (previously filed as an        exhibit to Form S-8 dated May 15, 2000)                                                                                                                                                                                                            |   |
| 10(h)        | Lease        document for the premises at 125 Broad Street, New York,        NY dated May 27, 1997 between NY Broad Holdings, Inc. and        Fahnestock & Co. Inc. (previously filed as an exhibit        filed to Form 10-K for the year ended December 31, 1997)                                                                                                                            |   |

 

 

E-1

| 10(i) | Lease        document for the premises at 300 River Place, Detroit, MI        dated February 28, 1997 between The Stroh Companies, Inc.        and First of Michigan Corporation (previously filed as an        exhibit filed to Form 10-K for the year ended December        31, 1997)          |   |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10(k) | Performance-Based        Compensation Agreement between Fahnestock Viner Holdings        Inc. and Albert G. Lowenthal dated March 25, 1997        (previously filed as an exhibit filed to Form 10-K for        the year ended December 31, 1997)                                                |   |
| 10(l) | Securities        Purchase Agreement dated June 11, 1997, between 1888        Limited Partnership and DST Systems Inc. and Purchaser        (previously filed as an exhibit to Schedule 14D-1 and        Schedule 13D for First of Michigan Capital Corporation        dated June 18, 1997)      |   |
| 10(m) | Fahnestock        Viner Holdings Inc. 1996 Equity Incentive Plan Amendment        No. 1 dated February 29, 2000 (previously filed as an        exhibit to Form 10-K for the year ended December 31,        1999)                                                                                 |   |
| 10(n) | Fahnestock        Viner Holdings Inc. 1996 Equity Incentive Plan Amendment        No. 2 dated May 19, 2001 (previously filed as an exhibit        to Form 10-K for the year ended December 31, 2001)                                                                                             |   |
| 10(o) | Performance-Based        Compensation Agreement between Fahnestock Viner Holdings        Inc. and Albert G. Lowenthal dated January 1, 2001        (previously filed as an exhibit to Form 10-K for the year        ended December 31, 2001)                                                     |   |
| 10(p) | Credit        Agreement dated January 2, 2003, by and between        Fahnestock Viner Holdings Inc. and Canadian Imperial Bank        of Commerce (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                                    |   |
| 10(q) | Amended        and Restated Promissory Note dated January 15, 2003, made        by Viner Finance Inc. for the benefit of CIBC World        Markets Corp (previously filed as an exhibit to Form 8-K        dated January 17, 2003).                                                              |   |
| 10(r) | Non-Competition        Agreement dated January 2, 2003, by and among Canadian        Imperial Bank of Commerce and CIBC World Markets Corp.,        Fahnestock & Co. Inc. and Viner Finance Inc.        (previously filed as an exhibit to Form 8-K dated January        17, 2003).          |   |
| 10(s) | Non-Solicitation        Agreement dated January 2, 2003 by and among Fahnestock        Viner Holdings Inc., Fahnestock & Co. Inc., Canadian        Imperial Bank of Commerce and CIBC World Markets Corp.        (previously filed as an exhibit to Form 8-K dated January        17, 2003). |   |
| 10(t) | Clearing        Agreement dated January 2, 2003 between Fahnestock &        Co. Inc. and CIBC World Markets Corp. (previously filed        as an exhibit to Form 8-K dated January 17, 2003).                                                                                                |   |

 

 

 

E-2

| 10(u) | Shareholders        Agreement dated December 9, 2002, by and among Fahnestock        Viner Holdings Inc., Albert G. Lowenthal, Phase II        Financial L.P., Phase II Financial Limited, The Albert G.        Lowenthal Foundation, Olga Roberts and Elka Estates        Limited (previously filed as an exhibit to Form 8-K dated        January 17, 2003). |   |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 21    | Subsidiaries        of the registrant (filed herewith) *                                                                                                                                                                                                                                                                                                       |   |
| 99.1  | Certification        pursuant to 18 U.S.C. Section 1350 signed by A.G.        Lowenthal (filed herewith) *                                                                                                                                                                                                                                                     |   |
| 99.2  | Certification        pursuant to 18 U.S.C. Section 1350 signed by E.K. Roberts        (filed herewith) *                                                                                                                                                                                                                                                       |   |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

E-3