**_________________________________________________________________________________**

UNITED STATES

SECURITIES ANDEXCHANGE COMMISSION

Washington, D. C.20549

**FORM 10-K**

(Mark One) 

[x] ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Forthe fiscal year ended December 31, 2001****

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 of registrant as specified in its charter)

Ontario, Canada (State or other jurisdiction of incorporation or organization)

98-0080034(I.R.S. Employer Identification No.)

P.O. Box 2015,Suite 111020 Eglinton Avenue WestToronto, Ontario, Canada M4R 1K8(Address of principal executive offices) (Zip Code)

Registrant’sTelephone number, 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 ]

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 December 31, 2001 was$349,140,000.

The number of shares of theCompany's Class A non-voting shares and Class B voting shares(being the only classes of common stock of the Company),outstanding on February 28, 2002 was 12,479,267 and 99,680shares, respectively.

_______________________________________________________________________

TABLE OF CONTENTS 

| Item        Number |                                                                                                     | Page   |
|--------------------|----------------------------------------------------------------------------------------------------------|--------|
| PART        1      |                                                                                                     |   |
| 1.                 | Business                                                                                                 | 1      |
| 2.                 | Properties                                                                                               | 13     |
| 3.                 | Legal        Proceedings                                                                                 | 13     |
| 4.                 | Submission        of Matters to a Vote of Security Holders                                               | 13     |
|               |                                                                                                     |   |
| PART        II     |                                                                                                     |   |
| 5.                 | Market        for the Registrant’s Common Equity and Related        Stockholder Matters             | 15     |
| 6.                 | Selected        Financial Data                                                                           | 17     |
| 7.                 | Management’s        Discussion and Analysis of Financial Condition and        Results of Operations | 18     |
| 7a.                | Quantitative        and Qualitative Disclosures About Market Risk                                        | 24     |
| 8.                 | Financial        Statements and Supplementary Data                                                       | 26     |
| 9.                 | Changes        in and Disagreements with Accountants and Financial        Disclosure                     | 26     |
|               |                                                                                                     |   |
| PART        III    |                                                                                                     |   |
| 10.                | Directors        and Executive Officers of the Registrant                                                | 27     |
| 11.                | Executive        Compensation                                                                            | 29     |
| 12.                | Security        Ownership of Certain Beneficial Owners and Management                                    | 36     |
| 13.                | Certain        Relationships and Related Transactions                                                    | 37     |
|               |                                                                                                     |   |
| PART        IV     |                                                                                                     |   |
| 14.                | Exhibits,        Financial Statement Schedules, and Reports on Form 8-K                                  | 38     |
|               |                                                                                                     |   |
|               | Signatures                                                                                               | 39     |

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, Freedom, Josephthaland Prime are sometimes collectively referred to as the"Operating Subsidiaries". Through the OperatingSubsidiaries, the Company is engaged in the securities brokerageand trading business and offers investment advisory and otherrelated financial 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 Company operates a discount brokerage businessbased in Omaha, Nebraska through Freedom. Freedom also servicesindependent financial consultants.

In May 2000, through a wholly-ownedsubsidiary, the Company acquired 100% of the outstanding sharesof Propp & Company Inc. ("Propp"), a New York-basedbroker-dealer in securities. The total purchase price wasapproximately $7,000,000. The acquisition was accounted for bythe purchase method. Propp ceased to be a broker dealer effectiveon August 15, 2000 and its business is being conducted byFahnestock.

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, a private New York-basedbroker-dealer founded in 1910 with approximately 265 financialconsultants in 25 offices across the United States at the time ofclosing. The acquisition was accounted for by the purchasemethod. 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. Josephthalwill make application to withdraw as a broker dealer. SinceJanuary 1, 2002 its business is being conducted by Fahnestock.

In October 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, a twelve-year-old full servicesecurities firm with approximately 110 financial consultantsoperating from offices in New York, New York and Boca Raton,Florida. The acquisition was accounted for by the purchasemethod. Effective January 1, 2002, Prime’s accounts becameFahnestock accounts. The business generated by the two branchesassociated with the Prime acquisition is being cleared pursuantto an agreement with Bank of New York. Prime ceased to be abroker-dealer effective January 22, 2002 and since January 1,2002 its business is being conducted by Fahnestock.

At December 31, 2001, Fahnestock employed1,135 full-time registered representatives and approximately 680other 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 1,815 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, filed an application forregistration as an investment dealer with the Investment DealersAssociation of Canada which was approved on January 17, 2002.

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 brokerfor Freedom, is also a member of the Securities InvestorProtection Corporation ("SIPC"), which provides, in theevent of the liquidation of a broker-dealer, protection forcustomers' accounts (including the customer accounts of othersecurities firms when it acts on their behalf as a clearingbroker) held by the firm of up to $500,000 for each customer,subject to a limitation of $100,000 for claims for cash balances.SIPC is funded through assessments on registered broker-dealers,which may not exceed 1% of a broker-dealer's gross revenues (asdefined); SIPC assessments were a flat fee of $150 in 2001, 2000and 1999. In addition, Fahnestock has purchased protection fromAetna Casualty and Surety Company of an additional $24,500,000per customer. 

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

|                                              | 2001     | %      | 2000     | %      | 1999     | %      |
|---------------------------------------------------|----------|--------|----------|--------|----------|--------|
| (Dollars        in thousands, except percentages) |
|                                              |     |   |     |   |     |   |
| Commissions                                       | $122,272 | 47%    | $128,915 | 41%    | $118,747 | 43%    |
| Principal        transactions, net                | 56,374   | 22%    | 84,420   | 27%    | 71,014   | 25%    |
| Interest                                          | 34,309   | 13%    | 63,696   | 20%    | 43,835   | 16%    |
| Underwriting        fees                          | 10,955   | 4%     | 9,314    | 3%     | 15,550   | 5%     |
| Advisory        fees                              | 24,504   | 9%     | 21,764   | 7%     | 22,440   | 8%     |
| Other                                             | 12,847   | 5%     | 8,390    | 2%     | 7,525    | 3%     |
|                                              |     |   |     |   |     |   |
| Total        revenues                             | $261,261 | 100%   | $316,499 | 100%   | $279,111 | 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 in transactions initiated byFreedom. Except as expressly otherwise stated, the discussionbelow 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"and "Securities Borrowed And Loaned." Fahnestockprovides margin financing for the clients of the securities firmsfor which it clears, with the securities firms guaranteeing theaccounts of their clients. Fahnestock also extends margin creditdirectly to its correspondent firms to the extent that such firmshold securities positions for their own account. BecauseFahnestock must 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, lending the customerany amounts required if the purchase is being made on margin, andmaking delivery to the broker for the other party to thetransaction. Fahnestock or the correspondent sends the customer awritten confirmation containing the details of each transactionthe day after it is executed and Fahnestock sends each customer amonthly statement for the entire account. The execution,clearance, settlement, receipt, delivery and record-keepingfunctions involved in the clearing process require theperformance of a series of complex steps, many of which areaccomplished with data processing 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, 2001, 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 are treated as investment income.

Principal transactions with customers aswell as market-making and other trading and investmentactivities, accounted for approximately 22%, 27% and 25%,respectively, of the Company’s total revenues for the fiscalyears ended December 31, 2001, 2000, and 1999, 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 the creditworthiness of its customers, Fahnestock imposes more conservativemargin requirements than those of the NYSE. Generally, Fahnestocklimits customer loans to an amount not greater than 65% of thevalue of the securities (or 50% if the securities in the accountare concentrated in a limited number of issues). Particularattention and more restrictive requirements are placed on morehighly volatile securities traded in the NASDAQ market. Incomparison, the NYSE permits loans of up to 75% of the value ofthe 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 charged bybanks 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 borrowing and by prevailing interest rates.

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 and to complete transactions in which customers havefailed to deliver securities by the required settlement date, andlends securities to other brokers and dealers for similarpurposes. When borrowing securities, Fahnestock is required todeposit cash or other collateral, or to post a letter of creditwith the lender, and receives a rebate (based on the amount ofcash deposited) or pays a fee calculated to yield a negotiatedrate 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 4%, 3% and5% of its revenues from underwriting in 2001, 2000 and 1999,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, 2001 Fahnestock hadapproximately $1.1 billion 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 approximately 196 persons in itsadministration and operations departments at its head office andapproximately 54 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 $15,000,000 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. 

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 and Josephthal) or the NASD(Freedom and Prime), the Operating Subsidiaries are subject tocertain net capital requirements pursuant to Rule 15c3-1 (the"Net Capital Rule") promulgated under the SecuritiesExchange Act of 1934 (the "Exchange Act"). The NetCapital Rule, which specifies minimum net capital requirementsfor registered brokers and dealers, is designed to measure thegeneral financial integrity and liquidity of a broker-dealer andrequires that at least a minimum part of its assets be kept inrelatively liquid form.****

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 at 11422Miracle Hills Dr., Omaha, Nebraska. Management believes that itspresent facilities are adequate for the purposes for which theyare used and have adequate capacity to provide for presentlycontemplated future uses. 

The Company and its subsidiaries own noreal property, but currently occupy office space totallingapproximately 527,000 square feet in 87 locations under standardcommercial terms expiring between 2002 and 2013. 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 have 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 theClass B Shares and no corresponding offer being made to purchaseClass A Shares, the holders of Class A Shares would have no rightunder the 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 fiscalyear.

 

 

**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 *highand low sales prices of the Class A Shares* on The TorontoStock Exchange and on The New York Stock Exchange. Pricesprovided are in Canadian dollars or U.S. dollars as indicated andare based on data provided by The Toronto Stock Exchange and TheNew York Stock Exchange.

| Class A Shares: | TSE                | NYSE           |
|-----------------|--------------------|----------------|
|            |               | HIGH           | LOW | HIGH | LOW |
|            |               | (Cdn. Dollars) | (U.S. dollars) |
|            |               |           |   |   |   |
| 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 |
|            |               |           |   |   |   |
| 2000            | 1st        Quarter | $24.75         | $20.60 | $17.125 | $14.5625 |
|            | 2nd        Quarter | $27.75         | $24.25 | $18.875 | $16.50 |
|            | 3rd        Quarter | $34.00         | $27.00 | $23.00 | $18.4375 |
|            | 4th        Quarter | $36.05         | $29.75 | $24.10 | $19.875 |

The following table sets forth informationabout the *shareholders of the Company* as at December 31,2001 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                                             | 5,105,377        | 41%        | 174                    |
| United        States                               | 7,231,676        | 59%        | 172                    |
| Other                                              | 32               | -          | 2                      |
|                                               |             |       |                   |
| Total        issued and outstanding                | 12,337,085       | 100%       | 348                    |

 

 

**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, 2001 and 2000.

| Type      | Declaration        date | Record        date       | Payment        date      | Amount        per share |
|-----------|-------------------------|--------------------------|--------------------------|-------------------------|
| Quarterly | January        27, 2000 | February        11, 2000 | February        25, 2000 | $0.07                   |
| Quarterly | April 19,        2000   | May 5,        2000       | May 19,        2000      | $0.08                   |
| Quarterly | July 19,        2000    | August 4,        2000    | August        18, 2000   | $0.08                   |
| Quarterly | October        19, 2000 | November        3, 2000  | November        17, 2000 | $0.08                   |
| 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                   |

Future dividend policy will depend upon theearnings and financial condition of the Operating Subsidiaries,the Company's need for funds and other factors. However, it isthe present intention of the Company's management to pay aquarterly dividend in the amount of U.S. $0.09 per Class A Shareand Class B Share in May, August and November, 2002. Dividendsmay be paid 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 3, 2001 the Company announced thatcommencing July 5, 2001 it intended to purchase up to 614,000Class 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 2001, through a Normal Course IssuerBid, which expired July 4, 2001, the Company did not purchase anyshares. However, the Company purchased 6,100 Class A Shares at anaverage cost of $24.45 per share pursuant to the Normal CourseIssuer Bid that commenced July 4, 2001. Any shares purchased bythe Company pursuant to the Normal Course Issuer Bid will becancelled. Unless terminated earlier by the Company, it maycontinue to purchase shares up to July 4, 2002. The Company may,at its option, apply to extend the program for an additionalyear.

 

 

**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, 2001. 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 2001, the Companypurchased Josephthal and Prime. The 2001 amounts include theassets and liabilities and operating results of Josephthal andPrime as of and subsequent to the period after September 17, 2001and November 9, 2001, respectively. In 1997, the Companypurchased First of Michigan Capital Corporation("FOM"). The 1997 amounts include the assets andliabilities and the operating results of FOM as of and subsequentto the period after July 17, 1997. See also Item 1,"Business" and Item 7, "Management’sDiscussion and Analysis of Financial Condition and Results ofOperations".

|                                                                     | 2001       | 2000       | 1999       | 1998       | 1997       |   |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|--------|
| (In thousands        of U.S. dollars except per share and share amounts) |       |
| Revenue                                                                  | $261,261   | $316,499   | $279,111   | $232,781   | $242,158   |   |
| Profit before extraordinary item                                         | $19,150    | $40,901    | $27,390    | $12,447    | $26,731    |   |
| Net profit                                                               | $19,150    | $40,901    | $27,390    | $12,447    | $26,731    |   |
| Profit before extraordinary item per share        (1)                    | $1.55      | $3.38      | $2.19      | $0.99      | $2.14      |   |
| Net profit per share (1)                                                 |       |       |       |       |       |   |
| - basic                                                                  | $1.55      | $3.38      | $2.19      | $0.99      | $2.14      |   |
| - diluted                                                                | $1.50      | $3.29      | $2.17      | $0.96      | $2.08      |   |
| Total assets                                                             | $710,275   | $697,482   | $766,528   | $666,763   | $835,146   |   |
| Total current liabilities                                                | $468,580   | $475,682   | $579,141   | $500,410   | $674,181   |   |
| Subordinated indebtedness,                                               |       |       |       |       |       |   |
| including current portion                                                | -          | -          | $30        | $30        | $30        |   |
| Cash dividends per Class A                                               |       |       |       |       |       |   |
| Share and Class B share                                                  | $0.36      | $0.31      | $0.28      | $0.28      | $0.24      |   |
| Shareholders' equity                                                     | $241,695   | $221,800   | $187,388   | $166,323   | $160,935   |   |
| Book value per share (1)                                                 | $19.43     | $18.34     | $15.30     | $13.48     | $12.87     |   |
| Number of shares of capital stock        outstanding                     | 12,436,765 | 12,090,649 | 12,247,249 | 12,340,949 | 12,508,440 |   |

The Class A Shares and Class BShares are combined because they are of equal rank for purposesof dividends and in the event of a distribution of assets uponliquidation, 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. 

Business Environment

The Company is a holding company whoseprincipal subsidiary is Fahnestock. Fahnestock providessecurities brokerage, investment banking, trust and assetmanagement services to its clients from 92 offices across theU.S.A. and including an office in Toronto, Canada and associatedoffices in Caracas, Venezuela and Buenos Aires, Argentina.Fahnestock is licensed to offer brokerage and other financialservices in all 50 States. Client assets entrusted to the Companyas at December 31, 2001 totalled approximately $19.6 billion. TheCompany provides investment advisory services through FahnestockAsset Management, operating as a division of Fahnestock. Clientassets under management by the asset management groups totaled$1.1 billion at December 31, 2001. Fahnestock also engages inproprietary trading of securities. In addition, the Companyoperates a discount brokerage business based in Omaha, Nebraska,through Freedom.

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. Allsuch conditions have an impact on commissions, trading andinvestment income as well as on liquidity. In addition, asignificant portion of the Company's expenses are relativelyfixed and do not vary with market activity. Consequently,substantial fluctuations can occur in the Company's revenues andnet income from period to period due to these and other factors.

In addition, the Company has facedincreasing competition from commercial banks and other sources asthese institutions begin to offer more investment banking andfinancial services traditionally only provided by securitiesfirms. The effect of the consolidation of the securities industryof recent years means that a variety of financial servicescompanies have merged to offer a broader spectrum of investmentproducts and such competitors have substantially greaterfinancial resources than the Company. The Company is alsoexperiencing increasing regulation in the securities industry,particularly affecting the over-the-counter markets, makingcompliance with regulations more difficult and costly. Atpresent, the Company is unable to predict the extent of thechanges, or their potential effect on the Company's business.

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 expanding thedevelopment of existing trading, investment banking, investmentadvisory and other activities. Equally important is the searchfor viable acquisition candidates. As opportunities arepresented, it is the 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. 

Results of Operations

Markets in fiscal 2001 were extremelyvolatile, and ended the year with a substantial decline.Beginning in May 2000 declines in over-valued technology andtelecommunications stocks, the ensuing loss of wealth, concernsover inflation and the slowing economy reduced investorsparticipation in the equity markets. On September 11, 2001,attacks by terrorists on the World Trade Center and the Pentagonirretrievably damaged North America’s sense ofinvulnerability at home. The repercussions have had and will havefar reaching consequences beyond the personal losses experiencedby many Americans and their families. An economy, already inrecession, saw consumers reduce expenditures, reduce travel andbrought business investment to a virtual halt. Despite continuinginterest rate reductions and calls to resume normal behavior, theeconomy continued to limp along. Securities markets werenegatively affected by issues surrounding the bankruptcy of EnronCorp. as investors remained uncertain and both economic andmarket conditions continue to be extremely volatile. 

The impact of difficult business conditionsprovided the opportunity for expansion of the Company’sbusiness. As a result, the Company made two acquisitions in thelatter part of 2001.

On September 17, 2001 the Company purchasedsubstantially all of the outstanding shares of Josephthal Group,Inc., the parent of Josephthal & Co. Inc., a full servicesecurities firm headquartered in New York City with approximately265 financial consultants in 25 offices across the United Statesat the time of closing. 

On November 9, 2001, the Company purchasedall of the outstanding common shares of Grand Charter Group,Incorporated, the parent of Prime Charter, Ltd., a full servicebroker-dealer headquartered in New York City with approximately110 financial consultants in New York City and Boca Raton,Florida.

The effect of these acquisitions was toincrease the number of financial consultants by 58% toapproximately 1,135 and the number of branch offices by 31% to92. The Company intends to continue to expand as opportunitiesoccur.

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

|                               | Period to Period Change |
|------------------------------------|-------------------------|
|                               | Increase (Decrease)     |
|                               | 2001 versus 2000        | 2000 versus 1999 |
|                               | Amount                  | Percentage | Amount | Percentage |
|                               |                    |   |   |   |
| Revenues        -                  |                    |   |   |   |
| Commissions                        | $(6,643)                | -5% | $10,168 | 9% |
| Principal        transactions, net | (28,046)                | -33% | 13,406 | 19% |
| Interest                           | (29,387)                | -46% | 19,861 | 45% |
| Underwriting        fees           | 1,641                   | 18% | (6,236) | -40% |
| Advisory        fees               | 2,740                   | 13% | (676) | -3% |
| Other                              | 4,457                   | 53% | 865 | 11% |
| Total        revenues              | (55,238)                | -17% | 37,388 | 13% |

| Expenses        -                  |      |   |    |   |
|------------------------------------|-----------|--------|---------|--------|
| Compensation                       | (6,043)   | -4%    | 11,324  | 8%     |
| Clearing        and exchanges fees | (1,193)   | -17%   | (1,665) | -19%   |
| Communications                     | 308       | 1%     | 1,891   | 9%     |
| Occupancy        costs             | 3,226     | 26%    | (257)   | -2%    |
| Interest                           | (19,051)  | -58%   | 11,796  | 55%    |
| Other                              | 7,615     | 55%    | (6,947) | -33%   |
| Total        expenses              | (15,138)  | -6%    | 16,142  | 7%     |
|                               |      |   |    |   |
| Profit        before taxes         | (40,100)  | -56%   | 21,246  | 42%    |
| Income        taxes                | (18,349)  | -60%   | 7,735   | 34%    |
| Net        profit                  | $(21,751) | -53%   | $13,511 | 49%    |

 

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. Principaltransactions (revenues from transactions in which the Companyacts 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 severalsignificant merger and acquisition transactions in 2001. Advisoryfees in 2001 were $24,504,000, an increase of 13% compared to$21,764,000 in 2000 as a result of increased fees from increasedbalances in money market funds.

Interest income was $34,309,000, a decreaseof 46% from $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 also theresult of discontinuing a matched book repurchase business, whichthe Company operated between the fall of 2000 and the spring of2001.

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 $7,205,000 in 2000. Communications expenses were$23,620,000, an increase of 1% over $23,312,000 in 2000reflecting additional costs in the last quarter of 2001, afterthe acquisition of Josephthal and Prime Charter. Occupancy costswere $15,691,000, an increase of 26% compared to $12,465,000 as aresult of increasing the size of the organization with theacquisition of Josephthal and Prime Charter in 2001. The numberof branch locations post-acquisitions is 92 compared to 70 priorto the acquisitions, an increase of approximately 31%. Otherexpenses were $21,417,000 in 2001, an increase of 55% over$13,802,000 in 2000. The differences relate to higher provisionfor bad debts in 2001 and higher error account charges comparedto 2000. 

Fiscal 2000 compared to Fiscal 1999

In fiscal 2000, the U.S. economy behavedlike a roller-coaster, with record volumes and valuations in theearly part of the year followed by a decline in May as the NewEconomy valuations collapsed. The summer months saw a brief rallyfollowed by a protracted decline throughout the balance of theyear. The Company’s level of business activity mirrored themarketplace, with a strong performance in the first quarter whichwas unsustainable through the balance of the year. Fiscal 2000was a record year, and on a quarter-by-quarter basis net resultsin 2000 were higher in each quarter compared to 1999, except forthe fourth quarter, when 2000 results were lower than in theprevious year.

Total revenues for 2000 were $316,499,000,an increase of 13% over $279,111,000 in 1999. Commission income(income realized in securities transactions for which the Companyacts as agent) increased 9% to $128,915,000 in 2000 from$118,747,000 in 1999. This increase is attributable to the activetrading environment encountered most particularly in the firstquarter of 2000, when strong investor interest propelledvaluations and volumes in the favored technology equities tohistorically high levels. Principal transactions (revenues fromtransactions in which the Company acts as principal in thesecondary market trading of over-the-counter equities andmunicipal, corporate and government bonds) increased by 19% to$84,420,000 in 2000 from $71,014,000 in 1999. The increase wasdue, in part, to a comparison against poor results in the firstquarter of 1999. Underwriting fees in 2000 were $9,314,000, adecrease of 40% compared to $15,550,000 in 1999. The collapse ofthe New Economy in the spring of 2000 and a slowing U.S. economyadversely affected the new issues market. Advisory fees in 2000were $21,764,000, a decrease of 3% compared to $22,440,000 in1999. The management of client assets was consolidated within theFahnestock Asset Management division in late 1999. The overalllevel of assets under management declined by approximately 10%from 1999 to 2000.

Interest income was $63,696,000 in 2000, anincrease of 45% over $43,835,000 in 1999. Interest expense was$33,122,000, an increase of 55% from $21,326,000 in 1999. Thisrepresents an increase of 36% in net interest revenue (interestrevenue less interest expense) in 2000 compared to 1999, whichcan be attributed to an increase in average customer debitbalances and higher average stock borrow/stock loan balances in2000 compared to 1999. The higher gross interest revenue andinterest expense amounts are the result of a matched bookrepurchase business in which the Company began trading activityin the fall of 2000.

Expenses totalled $244,787,000 in 2000, anincrease of 7% compared to $228,645,000 in 1999. The increase isdue, in part, to higher variable expenses, which increase asvolume of business increases, such as compensation and relatedexpenses and in part to the increase in interest expense relatedto the matched book business. Compensation and related costs were$154,881,000, an increase of 8% over $143,557,000 in 1999.Clearing and exchange fees were $7,205,000, a decrease of 19%from $8,870,000 in 1999. Communications expenses were$23,312,000, an increase of 9% over $21,421,000 in 1999reflecting additional costs in 2000, after the summer 1999introduction of a firm-wide proprietary communication platformproviding a wide area network supporting investment quotes andnews distribution, internet access, internal and external e-mailcapability, order entry, and data base management. Occupancycosts were $12,465,000, a decrease of 2% compared to $12,722,000as a result of branch consolidation and renegotiation of leases.Other expenses were $13,802,000, a decrease of 33% from$20,749,000 in 1999 due to a reduced provision for bad debts andreduced charges to the error account compared to 1999.

Liquidity and Capital Resources

The increase in the Company’s assetsin 2001 compared to 2000 is primarily the result of increasedcash and short-term deposits as well as by increased clientbalances, reflecting the addition of the business of Josephthal& Co in the fourth quarter. Also impacting the Company’sassets is the cessation since the spring of 2001 of a matchedbook repurchase business. Customer-related receivables andsecurities inventory are highly liquid and represent asubstantial percentage of total assets. The principal sources offinancing for the Company's assets are stockholders' equity,customer free credit balances, proceeds from securities lending,bank loans and other payables. The Company historically has notutilized long-term financing. Cash generated from operations,increased earnings, proceeds from stock purchased by employeestock plans, and cash proceeds upon the exercise of employeestock options supplemented bank borrowings during the past threeyears. At December 31, 2001, Fahnestock had bank lines of creditand call loan arrangements with outstanding borrowings thereunderof $13,134,000. At December 31, 2001 Fahnestock had availablecollateralized and uncollateralized letters of credit of$39,500,000.

Contractual and commercial commitmentsconsist of operating and capital leases which are disclosed innote 9 to the consolidated financial statements and there are noother contingent or undisclosed liabilities.

During 2001, the Company paid cashdividends to its shareholders totalling $4,443,000 frominternally generated cash.

During 2001, the Company purchased a totalof 6,100 of its Class A non-voting shares at an average cost of$24.45 per share through the facilities of the Toronto and NewYork Stock Exchanges by way of a Normal Course Issuer Bid, usinginternally generated cash. The Company has expressed an intentionto purchase up to an additional 607,900 of its shares from timeto time until July 4, 2002 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 capital expenditures,as needed.

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

Please see note 11 of the Company’sconsolidated financial statements for a discussion of newlyissued accounting standards.

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, and (x) changesin federal and state tax laws which could affect the popularityof products sold by the Company. The Company does not undertakeany obligation to publicly update or revise any forward-lookingstatements.

 

**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).

Other Risk

In addition, the Company’s activitiesexpose it to operational risk, legal risk and funding risk.Operational risk generally means the risk of loss resulting fromimproper processing of transactions or deficiencies in theCompany’s operating systems or internal controls. Withrespect to its trading activities, the Company has proceduresdesigned to ensure that all transactions are accurately recordedand properly reflected on the Company’s books on a timelybasis. With respect to client activities, the Company operates asystem of internal controls designed to ensure that transactionsand other account activity (new account solicitation, transactionauthorization, transaction processing, billing and collection)are properly approved, processed, recorded and reconciled. Legalrisk generally includes the risk of non-compliance with legal andregulatory requirements and the risk that a counterparty’sobligations are unenforceable. The Company is subject toextensive regulation in the various jurisdictions in which itconducts its business. Through its legal advisors and itscompliance department, the Company has established routines toensure compliance with regulatory capital requirements, sales andtrading practices, new products, use and safekeeping of customersecurities and funds, granting of credit, collection activitiesand record keeping. The Company has procedures designed to assessand monitor counterparty risk. For a discussion of funding risk,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.

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, 2001 and 2000, theCompany’s value-at-risk for each component of market riskwas as follows (in thousands of U.S. dollars):*

|                           | Fiscal 2001 | As at December        31, |
|--------------------------------|-------------|---------------------------|
|                           | High        | Low                       | Average | 2001 | 2000 |
|                           |        |                      |   |   |   |
| Interest        rate risk      | $231        | $148                      | $200 | $203 | $115 |
| Equity        price risk       | 357         | 193                       | 334 | 523 | 562 |
| Diversification        benefit | (216)       | (67)                      | (211) | (385) | (325) |
|                           |        |                      |   |   |   |
| Total                          | $372        | $274                      | $323 | $341 | $352 |

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 2001 from those reported in2000 reflect changes in the size and composition of theCompany’s trading portfolio at December 31, 2001 compared toDecember 31, 2000. Further discussion of risk management appearsin Item 7, Management’s Discussion and Analysis of theResults of Operations 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, 2001 is set forth below.

| Name                       | Age    | Positions held                                                                                                                                                                                                                                                                                                                                                                                          |
|----------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| John L.        Bitove      | 74     | A        Director of the Company since February 1980; Retired        executive.
- Member of the        Audit and Compensation and Stock Option Committees                                                                                                                                                                                                                                               |
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| Richard        Crystal     | 61     | A        Director of the Company since 1992; Partner Brown Raysman        Millstein Felder & Steiner LLP (law firm) since July        2002; Partner, Winston & Strawn (law firm) and        predecessor firms, U.S. counsel to the Company from 1985        to July 2002.                                                                                                                       |
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| Albert G.        Lowenthal | 56     | 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 brokerage        firm. |
|                       |   |                                                                                                                                                                                                                                                                                                                                                                                                    |
| Kenneth        W. McArthur | 66     | A        Director of the Company since 1996; President and C.E.O.        of Shurway Capital Corporation ( a private corporation),        since July1993; Senior Vice-President Bank of Montreal        Investment Counsel between January 1992 and July 1993;        Senior Vice-President Nesbitt Thomson Inc. between July        1989 and January 1993.
-        Member of the Audit Committee       |
| A. Winn        Oughtred    | 59     | 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.                                                                                                                            |

|                     |   |
|--------------------------|--------|
| Elaine K.        Roberts | 50     | President,        Treasurer and a Director of the Company since 1977;        Treasurer and a Director of Fahnestock since 1983. |
|                     |   |   |
| Burton        Winberg    | 77     | 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, 2001, all Section 16(a)filing requirements applicable to the Company's officers,directors and greater than ten percent stockholders were compliedwith. 

DIRECTORS COMPENSATION

In the year ended December 31, 2001, theCompany paid its directors an annual retainer fee of $10,000 plus$1,000 for each board or committee meeting attended in person and$500 for board or committee meeting attended by telephone.Directors are reimbursed for travel and related expenses incurredin attending board and committee meetings. Directors who are notemployees of the Company and its subsidiaries, are also entitledto the automatic grant of stock options under the Company’s1996 Equity Incentive Plan, as amended, (the "Plan")pursuant to a formula set out in the Plan.

DIRECTORS AND OFFICERS INSURANCE

The Company carries liability insurance forits directors and officers. In December 1998, the Companypurchased directors and officers liability insurance for thethree years ending November 30, 2001 at an annual premium rate of$55,000. On November 30, 2001, the Company renewed its directorsand officers liability insurance for one year ending November 30,2002 at an annual premium rate of $112,000. No part of theinsurance premiums were or are to be paid by the officers anddirectors. The aggregate insurance coverage under both policiesis limited to $10 million with $1 million 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 31,2001, 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, 2001 exceeded$100,000 (the "Named Executives").*

|                                       |   | Annual        Compensation | Long-term

Compensation |                                  |   |
|--------------------------------------------|--------|----------------------------|-------------------------|---------------------------------------|--------|
| Name and Principal Occupation              | Year   | Salary                     | Bonus                   | Other Annual        Compensation

(1) |   | Class A Shares Underlying Options |   | All Other Compensation

(2) |
|                                       |   |                       |                    |                                  |   |   |   |   |
| A.G. Lowenthal,                            | 2001   | $480,350                   | $497,500                | $18,000                               |   | 0 |   | $5,725 |
| Chairman, CEO,                             | 2000   | $480,350                   | $3,960,000              | $17,330                               |   | 0 |   | $7,693 |
| and Director of the Company and Fahnestock | 1999   | $300,000                   | $981,510                | $11,170                               |   | 150,000 |   | $6,270 |
|                                       |   |                       |                    |                                  |   |   |   |   |
| Robert Neuhoff,                            | 2001   | $260,000                   | $175,000                | 0                                     |   | 0 |   | $5,725 |
| Executive Vice                             | 2000   | $260,000                   | $225,000                | 0                                     |   | 0 |   | $7,693 |
| President of Fahnestock                    | 1999   | $230,000                   | $185,000                | 0                                     |   | 50,000 |   | $6,270 |
|                                       |   |                       |                    |                                  |   |   |   |   |
| George Stroebel, (3)                       | 2001   | $275,000                   | $225,000                | 0                                     |   | 75,000 |   | 0 |
| Chief Operating Officer of Fahnestock      |   |                       |                    |                                  |   |   |   |   |
|                                       |   |                       |                    |                                  |   |   |   |   |
| Eric Shames,                               | 2001   | $290,000                   | $100,000                | 0                                     |   | 0 |   | $5,725 |
| Secretary and Chief                        | 2000   | $250,000                   | $200,000                | 0                                     |   | 0 |   | $7,693 |
| Legal Officer of Fahnestock                | 1999   | $210,000                   | $110,000                | 0                                     |   | 15,000 |   | $6,270 |
|                                       |   |                       |                    |                                  |   |   |   |   |
| Robert Sablowsky,                          | 2001   | $225,000                   | $210,000                | $170,332                              |   | 0 |   | $5,725 |
| Executive Vice                             | 2000   | $225,000                   | $325,000                | $323,137                              |   | 20,000 |   | $6,690 |
| President of Fahnestock                    | 1999   | $200,000                   | $40,000                 | $235,154                              |   | 20,000 |   | $6,270 |

> 
(1) For Mr. Lowenthal, includes for        2001 and 2000, Directors Fees of $10,000 per year plus        $1000 per meeting attended in person and $500 per meeting        attended by telephone and for 1999 Directors fees of        Cdn.$10,000 per year plus Cdn.$600 per meeting attended        and which were converted to $U.S. at the average rate        prevailing during the year. For Mr. Sablowsky, includes        commissions earned on his retail business.

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

(3) Mr. Stroebel joined Fahnestock        on January 8, 2001.

 

 

OPTION GRANTS FOR THE YEAR ENDED DECEMBER31, 2001

| Name                   | Number        of Class A Shares underlying options | Percentage        of options granted to employees in 2001 | Date        of Grant    | Exercise
Price of Option | Grant Date Present Value | Expiration        Date  |
|------------------------|----------------------------------------------------|-----------------------------------------------------------|-------------------------|--------------------------|--------------------------|-------------------------|
|                   |                                               |                                                      |                    |                     |                     |                    |
| George        Stroebel | 75,000                                             | 11.3%                                                     | January        11, 2001 | $22.72                   | $508,000                 | January        10, 2006 |

The Company determined the present value ofthe options granted using an option pricing model with thefollowing weighted average assumptions: risk-free interest rateof 4.96%, expected dividend yield of 1.6%, expected life of 5years and expected volatility of 22.72%. The stock options expire5 years from the date of grant and vest over a five year periodwith 0% in year one, 25% of the shares becoming exercisable oneach of the next three anniversaries of the date of grant and thebalance vesting in the last six months of the option life. 

AGGREGATED OPTION EXERCISES AND YEAR-ENDVALUE TABLE

*The following table sets forthinformation with respect to options exercised during the yearended December 31, 2001 by the Named Executives and as tounexercised options held by them at December 31, 2001:*

| Name           |   | Shares acquired on exercise | Value Realized |   | Number of shares Underlying        options/SARs exercisable/unexercisable |   | Year-end value of unexercised        in-the-money options exercisable/unexercisable |
|----------------|--------|-----------------------------|----------------|--------|---------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|
|           |   |                        |           |   |                                                                      |   |                                                                                |
| A.G. Lowenthal |   | 0                           | 0              |   | 112,500/187,500                                                           |   | $1,322,800/$2,404,700                                                               |
| R. Neuhoff     |   | 0                           | 0              |   | 12,5000/62,500                                                            |   | $180,300/$656,900                                                                   |
| G. Stroebel    |   | 0                           | 0              |   | 0/75,000                                                                  |   | $0/$418,500                                                                         |
| E. Shames      |   | 15,000                      | $248,000       |   | 11,250/18,750                                                             |   | $132,300/$240,500                                                                   |
| R. Sablowsky   |   | 20,000                      | $149,900       |   | 8,910/45,000                                                              |   | $109,300/$480,000                                                                   |

 

Employment agreement

Fahnestock and George Stroebel, one of theNamed Executives, are parties to an employment agreement datedNovember 29, 2000 which provides for an annual salary of$275,000, an annual bonus equal to 0.5% of the Company’spre-tax income (2001 bonus not to be less than $225,000), optionson 150,000 Class A Shares to be granted pursuant to the Plan(75,000 in January, 2001 and 75,000 in January, 2002), andstandard benefits provided by the Company.The agreement is for an initial term through January7, 2003. If the agreement is terminated by Fahnestock for otherthan just cause or by Mr. Stroebel for breach of certain terms ofthe agreement during the initial term of the agreement, Mr.Stroebel will be entitled to the continuation of his annualsalary until the earlier of six months from termination orJanuary 7, 2003, plus in 2002, a bonus determined pursuant to theagreement.

 

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 2001. In addition, the report specificallydiscusses the Committee's bases for compensation in 2001 of theCompany’s Chief Executive Officer, as well as the othersenior executive officers of the Company 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 Company’s success in theshort-term, long-term or both.

The Company’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 Agreements referred to below.

In arriving at its recommendationsconcerning the specific components of the Company’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 Company as measured by net income levels andearnings per share, among other factors.

The Committee believes that this approachbest serves the interests of shareholders by enabling the Companyto structure compensation in a way that meets the requirements ofthe highly competitive environment in which the Company operates,while ensuring that senior executive officers are compensated ina manner that advances both the short and long-term interests ofshareholders.

Compensation for the Company’s seniorexecutive officers involves a significant component ofremuneration which is contingent on the performance of both theCompany 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 theCompany’s shareholders).

*Base Salary.* Salaries paid to seniorexecutive officers (other than the Chief Executive Officer) arereviewed and set annually by the Committee consideringrecommendations made by the Chief Executive Officer to theCommittee, based upon the Chief Executive Officer's assessment ofthe nature of the position, and the skills, experience andperformance of each senior executive officer, as well as salariespaid by comparable companies in the Company’s industry.

*Annual Bonus.* Bonuses paid to seniorexecutive officers (other than the Chief Executive Officer) areset annually by the Committee considering recommendations made bythe Chief Executive Officer to the Committee, based upon theChief Executive Officer's assessment of the performance of theCompany and his assessment of the contribution of each seniorexecutive 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.

*Stock Option Grants.* Under the Plan,as amended, senior executive officers and employees of theCompany 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 Company andFahnestock, is paid a base salary set by the Committee, plusperformance-based compensation under the Performance-BasedCompensation Agreements referred to below and, at the discretionof the Committee, is eligible for bonuses and grants of stockoptions.

On March 5, 1997, the Company entered intoa Performance-Based Compensation Agreement (the "1997 CompAgreement") effective as of January 1, 1997 and expiringDecember 31, 2001 with Albert G. Lowenthal, pursuant to therecommendation of the Committee, the approval of the Board ofDirectors and the approval of the holders of the Class B Shares.The purpose of the 1997 Comp Agreement was to set the terms underwhich Mr. Lowenthal's performance-based compensation was to becalculated during the term thereof. 

The 1997 Comp Agreement was terminatedeffective December 31, 2000 because the Compnay had made themaximum dollar amount of performance awards provided for in the1997 Comp Agreement. Upon the recommendation of the Committee andthe approval of the Board, a new Performance-Based CompensationAgreement dated January 1, 2001 (the "2001 CompAgreement") was entered into between the Company and Mr.Lowenthal. The 2001 Comp Agreement was approved by the holders ofthe Class B Shares on May 14, 2001.

In March of 2001, The Committee establishedperformance goals under the 2001 Comp Agreement entitling Mr.Lowenthal to a Performance Award for the year 2001 of anaggregate of the amounts determined by the application for thefollowing formulae,

| an amount equal to the                amount by which the closing price of Class A                Shares on the New York Stock Exchange on December                31, 2001, exceeded the closing price on February                28, 2001 multiplied by 200,000; plus                                                                                                                                                                                                                                                                                                                                                             | $928,000 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| an amount equal to:

3% of the amount by which                the Company’s consolidated profit before                income taxes for the year ended December 31, 2001                exceeds 15% and is less than 25% of the                Company’s consolidated shareholders' equity                at December 31, 2000; plus

4% of the amount by which                the Company’s consolidated profit before                income taxes for the year ended December 31, 2001                exceeds 25% of the Company’s consolidated                shareholders' equity at December 31, 2000; plus | nil

nil |
| 3% percent of the amount by                which the Company’s consolidated net profit                at December 31, 2001 exceeds U.S.$26,913,000, the                average of the Company’s consolidated net                profit for 1998,1999 and 2000).                                                                                                                                                                                                                                                                                                                                                           | nil      |
| Total earned under the 2001 Comp Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $928,000 |
| Total paid to Mr. Lowenthal with respect to        fiscal 2001*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $497,500 |

* Because of the Company’s performancein 2001, Mr. Lowenthal requested and the Committee agreed tolimit Mr. Lowenthal’s performance bonus for 2001 to$497,500.

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

The Company 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 it constitutes qualified performance-based compensation orotherwise qualifies for an exception.

In order to qualify for exemptions underSection 162(m), on March 25, 1997, the 1997 Comp Agreement wasadopted and approved by the Class B Shareholders and in 2001 the2001 Comp Agreement was adopted and approved by the Class BShareholders.

In 1997, the Committee proposed and theDirectors adopted an amendment to the Plan which was confirmed bythe Class B Shareholders limiting the number of Class A Sharesissuable under options granted under the Plan in any 60 monthperiod to 500,000 with respect to certain individual participantsin the Plan. In 1999, the Committee proposed and the Directorsadopted a further amendment to the Plan which was confirmed bythe Class B Shareholders extending this limitation to allparticipants in the Plan.

To the extent consistent with theCompany’s general compensation objectives, the Committeeconsiders the potential effect of Section 162(m) on compensationpaid to the executive officers of the Company 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 theCompany’s efforts to qualify, that the compensation paid bythe Company to its executive officers will in fact satisfy therequirements for the exemption from the Section 162(m) deductionlimit.

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

Burton Winberg — Chairman

John L. Bitove

 

 

SHARE PERFORMANCE GRAPH

The following graph shows changes over thepast five years period of U.S.$100 invested in (1) theCompany’s Class A Shares, (2) the Standard & Poors 500Composite Stock Price Index and (3) the Toronto Stock Exchange300 Composite Index.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

> 
*The following table sets    forth information as of December 31, 2001 as to the only    persons known to the Company who own beneficially more than    5% of the Class B Shares (the only class of voting stock of    the Company). There are no outstanding rights to acquire    beneficial ownership of any Class B Shares.*

| Title        of Class | Identity        of Person or Group | Mailing        Address                                                              | Amount        Owned |   | Percent        of Class |
|-----------------------|------------------------------------|-------------------------------------------------------------------------------------|---------------------|--------|-------------------------|
| Class        B        | A.G.        Lowenthal              | c/o        Fahnestock & Co. Inc.
125 Broad St

New York, NY 10004               | 50,490              | (1)    | 50.6%                   |
|                  |                               |                                                                                |                |   |                    |
|                  | O.        Roberts                  | c/o        Suite 1110, Box 2015
20        Eglinton Ave. W.

Toronto, Canada M4R 1K8 | 44,309              | (2)    | 44.4%                   |

________________________________________

1. All shares are held of recordby Phase II Financial Limited, an Ontario corporation("Phase II") wholly-owned by Mr. Lowenthal who isChairman of the Company.

2. Mrs. Roberts, who is the motherof Elaine Roberts, President of the Company, owns 100 sharesdirectly and 44,209 shares indirectly through Elka EstatesLimited, an Ontario corporation ("Elka") which iswholly-owned by Mrs. Roberts.

> 
*The following table sets    forth information as of December 31, 2001 as to the ownership    of Class A Shares and Class B Shares, the only classes of    equity securities of the Company, by persons who are    directors of the Company, the Named Executives, and as to    directors and executive officers of the Company as a group,    without naming them.*

| Title        of Class | Identity        of Person or Group                              | Amount        Owned |   | Percent        of Class |
|-----------------------|-----------------------------------------------------------------|---------------------|--------|-------------------------|
| Class        A Shares | A.G.        Lowenthal                                           | 2,575,497           | (1)    | 21%                     |
|                  | J.L.        Bitove                                              | 50,580              | (3)    | *                       |
|                  | R.        Crystal                                               | 1,500               |   | *                       |
|                  | K.W.        McArthur                                            | 40,000              | (4)    | *                       |
|                  | R.        Neuhoff                                               | 37,390              | (7)    | *                       |
|                  | A.W.        Oughtred                                            | 8,500               | (4)    | *                       |
|                  | E.K.        Roberts                                             | 139,744             | (5)    | 1%                      |
|                  | R.        Sablowsky                                             | 7,600               | (8)    | *                       |
|                  | E.        Shames                                                | 15,000              | (9)    | *                       |
|                  | G.        Stroebel                                              | 5,000               |   | *                       |
|                  | B.        Winberg                                               | 12,100              | (6)    | *                       |
|                  | Executive        Officers and Directors as a group (10 members) | 2,892,911           |   | 23%                     |

| Class        B Shares | A.G.        Lowenthal                                           | 50,490 | (2)    | 51% |
|-----------------------|-----------------------------------------------------------------|--------|--------|-----|
|                  | J.L.        Bitove                                              | 20     |   | *   |
|                  | R.        Crystal                                               | 0      |   | *   |
|                  | K.W.        McArthur                                            | 0      |   | *   |
|                  | R.        Neuhoff                                               | 0      |   | *   |
|                  | A.W.        Oughtred                                            | 0      |   | *   |
|                  | E.K.        Roberts                                             | 108    |   | *   |
|                  | E.        Shames                                                | 0      |   | *   |
|                  | G.        Stroebel                                              | 0      |   | *   |
|                  | B.        Winberg                                               | 0      |   | *   |
|                  | Executive        Officers and Directors as a group (10 members) | 50,618 |   | 51% |

* less than 1%

(1) Mr. Lowenthal is the solegeneral partner of Phase II Financial L. P., a New York limitedpartnership, ("Phase II L.P.") which is the recordholder of 2,445,900 Class A Shares. Mr. Lowenthal holds 10,731Class A Shares through the Company's 401(k) plan, 5,000 throughthe Albert G. Lowenthal Foundation and 1,366 Class A Sharesdirectly. 112,500 Class A Shares are beneficially owned inrespect of Class A Shares currently issuable upon exercise ofoptions granted under the Plan.

> 
Phase II, an Ontario    corporation wholly-owned by Mr. Lowenthal, is the holder of    record of all such shares.

25,000 Class A Shares are    beneficially owned in respect of Class A Shares currently    issuable upon exercise of options issued under the Plan. The    balance of the shares held, are held directly.

5,000 Class A Shares are    beneficially owned in respect of Class A Shares currently    issuable upon exercise of options issued under the Plan. The    balance of the shares held, are held directly.

18,750 Class A Shares are    beneficially owned in respect of Class A Shares currently    issuable upon exercise of options issued under the Plan. The    balance of the shares held, are held directly.

10,000 Class A Shares are    beneficially owned in respect of Class A Shares currently    issuable upon exercise of options issued under the Plan. The    balance of the shares held, are held directly.

4,890 Class A Shares are held    through the Company’s 401(k) plan and 12,500 Class A    Shares are beneficially owned in respect of Class A Shares    currently issuable upon exercise of options issued under the    Plan. The balance of the shares held, are held directly.

397 Class A Shares are held    through the Company’s 401(k) plan and 10,000 Class A    Shares are beneficially owned in respect of Class A Shares    currently issuable upon exercise of options issued under the    Plan. The balance of the shares held, are held directly.

1,893 Class A Shares are held    through the Company’s 401(k) plan and 11,250 Class A    Shares are beneficially owned in respect of Class A Shares    currently issuable upon exercise of options issued under the    Plan. The balance of the shares held, are held directly.

(c) There are no arrangements,known to the Company, the operation of which may at a subsequentdate result in a change of control of the Company.

**Item 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

During the year 2001 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 2001 | Amount Outstanding as at December 31, 2001 | Security        for Indebtedness |
|----------------------------------------------------------------------------------------|----------------------------------------|--------------------------------------------|----------------------------------|
| Albert G.        Lowenthal,
Chairman and CEO        of the Company and Fahnestock      | $185,000                               | Nil                                        | Margined        securities       |
| Eric        Shames,
Secretary and Chief        Legal Officer of Fahnestock             | $153,200                               | $148,000                                   | Margined        securities       |
| A. Winn        Oughtred, Secretary and a Director of the Company and        Fahnestock | $164,000                               | Nil                                        | Margined        securities       |

 

 

 

**PART IV**

**Item 14. EXHIBITS, FINANCIAL STATEMENTSCHEDULES AND REPORTS ON**

**FORM 8-K**

| (a)    | (i)    | Financial        Statements                                                                                                                                                                                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | The        response to this portion of Item 14 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                                                                                                                                                                                      |
|   |   | None                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                            |
| (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 28th day of March, 2002.

FAHNESTOCK VINER HOLDINGS INC.

BY: /s/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                     |
|---------------------------|---------------------------------------------------------------|--------------------------|
|                      |                                                          |                     |
| /s/ J.L.        Bitove    | Director                                                      | February        28, 2002 |
| J.L.        Bitove        |                                                          |                     |
|                      |                                                          |                     |
| /s/ R.        Crystal     | Director                                                      | February        28, 2002 |
| R.        Crystal         |                                                          |                     |
|                      |                                                          |                     |
| /s/ A.G.        Lowenthal | Chairman,        Chief Executive                              | February        28, 2002 |
| A.G.        Lowenthal     | Officer,        Director                                      |                     |
|                      |                                                          |                     |
| /s/ K. W.        McArthur | Director                                                      | February        28, 2002 |
| K.W.        McArthur      |                                                          |                     |
|                      |                                                          |                     |
| /s/ A.W.        Oughtred  | Secretary,        Director                                    | February        28, 2002 |
| A.W.        Oughtred      |                                                          |                     |
|                      |                                                          |                     |
| /s/ E.K.        Roberts   | President        & Treasurer,                             | February        28, 2002 |
| E.K.        Roberts       | (Principal        Financial and Accounting Officer), Director |                     |
|                      |                                                          |                     |
| /s/ B.        Winberg     | Director                                                      | February        28, 2002 |
| B.        Winberg         |                                                          |                     |

 

 

INDEX TOCONSOLIDATED FINANCIAL STATEMENTS

FAHNESTOCK VINERHOLDINGS INC.

 

| Management’s        Responsibility for Consolidated Financial Statements                                                 | F-1    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                          |   |
| Report        of Independent Accountants                                                                                      | F-2    |
|                                                                                                                          |   |
| Consolidated        Balance Sheets as of December 31, 2001 and 2000                                                           | F-3    |
|                                                                                                                          |   |
| Consolidated        Statements of Operations for the three years ended        December 31, 2001, 2000 and 1999                | F-4    |
|                                                                                                                          |   |
| Consolidated        Statements of Shareholders’ Equity for the three        years ended December 31, 2001, 2000 and 1999 | F-5    |
|                                                                                                                          |   |
| Consolidated        Statements of Cash Flows for the three years ended        December 31, 2001, 2000 and 1999                | F-6    |
|                                                                                                                          |   |
| Notes        to Consolidated Financial Statements                                                                             | F-7    |

 

 

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 the changes in its financial position, estimateswhich are necessary are based on careful judgements and have beenproperly reflected in the consolidated financial statements.Management has established systems of internal control which aredesigned to provide reasonable assurance that assets aresafeguarded from loss or unauthorized use and to produce reliableaccounting records for the preparation of financial information.

PricewaterhouseCoopers LLP, theCompany's independent accountants, conducts 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 accountants 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 A.G. Lowenthal, Chairman of the Board and Chief Executive Officer

E.K. Roberts,/s/E.K. RobertsPresident and Treasurer

February 21, 2002 

F-1

 

REPORT OFINDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS OF FAHNESTOCKVINER HOLDINGS INC.

In our opinion, the accompanyingconsolidated balance sheets and the related consolidatedstatements of operations, shareholders’ equity and cashflows present fairly, in all material respects, the financialposition of Fahnestock Viner Holdings Inc. and its subsidiariesat December 31, 2001 and 2000, and the results of its operationsand its cash flows for each of the three years in the periodended December 31, 2001 in conformity with accounting principlesgenerally accepted in the United States of America. Thesefinancial statements are the responsibility of the Company’smanagement; our responsibility is to express an opinion on thesefinancial statements based on our audits. We conducted our auditsof these statements in accordance with auditing standardsgenerally accepted in the United States of America, which requirethat we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used andsignificant estimates made by management, and evaluating theoverall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

New York, New York

February 21, 2002.

F-2

 

 

| FAHNESTOCK        VINER HOLDINGS INC.        CONSOLIDATED BALANCE SHEETS        AS AT DECEMBER 31,    |
|-------------------------------------------------------------------------------------------------------|
|                                                                                                  |   | 2001 |   | 2000 |
| (Expressed in        thousands of U.S. dollars)                                                       |
| ASSETS                                                                                                |   |   |   |   |
| Current assets                                                                                        |   |   |   |   |
| Cash and cash equivalents                                                                             |   | $24,217 |   | $14,669 |
| Restricted deposits (note 2)                                                                          |   | 2,393 |   | 2,712 |
| Securities purchased under        agreement to resell                                                 |   | - |   | 23,500 |
| Deposits with clearing        organizations                                                           |   | 7,686 |   | 5,917 |
| Receivable from brokers and        clearing organizations                                             |   | 100,694 |   | 130,657 |
| Receivable from customers                                                                             |   | 463,986 |   | 428,582 |
| Securities owned, including amounts        pledged, at market value         (note 3)                  |   | 50,575 |   | 51,543 |
| Other                                                                                                 |   | 38,430 |   | 23,050 |
|                                                                                                  |   | 687,981 |   | 680,630 |
| Other assets                                                                                          |   |   |   |   |
| Stock exchange seats (approximate        market value                                                 |   |   |   |   |
| $8,155; $8,258 in 2000)                                                                               |   | 3,018 |   | 3,018 |
| Fixed assets, net of accumulated        depreciation of $18,503; $14,961 in 2000                      |   | 9,992 |   | 9,687 |
| Goodwill, at amortized cost                                                                           |   | 9,284 |   | 4,147 |
|                                                                                                  |   | 22,294 |   | 16,852 |
|                                                                                                  |   | $710,275 |   | $697,482 |
| LIABILITIES AND SHAREHOLDERS'        EQUITY                                                           |   |   |   |   |
| Current liabilities                                                                                   |   |   |   |   |
| Drafts payable                                                                                        |   | $20,622 |   | $26,464 |
| Bank call loans (note 4)                                                                              |   | 13,134 |   | 25,899 |
| Securities sold under agreement to        repurchase                                                  |   | - |   | 23,500 |
| Payable to brokers and clearing        organizations                                                  |   | 179,212 |   | 222,150 |
| Payable to customers                                                                                  |   | 188,387 |   | 124,534 |
| Securities sold, but not yet        purchased, at market value (note 3)                               |   | 8,921 |   | 8,153 |
| Accounts payable and other        liabilities                                                         |   | 56,812 |   | 40,003 |
| Income taxes payable                                                                                  |   | 1,492 |   | 4,979 |
|                                                                                                  |   | 468,580 |   | 475,682 |
| Commitments and contingencies (note        9)                                                         |   |   |   |   |
| Shareholders' equity                                                                                  |   |   |   |   |
| Share capital (note 5)                                                                                |   |   |   |   |
| 12,337,085 Class A non-voting        shares (2000-11,990,969 shares)                                  |   | 34,124 |   | 29,550 |
| 99,680 Class B voting shares                                                                          |   | 133 |   | 133 |
|                                                                                                  |   | 34,257 |   | 29,683 |
| Contributed capital (note 6)                                                                          |   | 4,113 |   | 3,499 |
| Retained earnings                                                                                     |   | 203,325 |   | 188,618 |
|                                                                                                  |   | 241,695 |   | 221,800 |
|                                                                                                  |   | $710,275 |   | $697,482 |
| The        accompanying notes are an integral part of these        consolidated financial statements. |
| F-3                                                                                                   |

 

| FAHNESTOCK        VINER HOLDINGS INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        FOR THE YEAR ENDED DECEMBER 31, |
|---------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                      |   | 2001 |   | 2000 |   | 1999 |
| (Expressed        in thousands of U.S. dollars, except per share amounts)                                                 |
| REVENUE:                                                                                                                  |   |   |   |   |   |   |
| Commissions                                                                                                               |   | $122,272 |   | $128,915 |   | $118,747 |
| Principal transactions, net                                                                                               |   | 56,374 |   | 84,420 |   | 71,014 |
| Interest                                                                                                                  |   | 34,309 |   | 63,696 |   | 43,835 |
| Underwriting fees                                                                                                         |   | 10,955 |   | 9,314 |   | 15,550 |
| Advisory fees                                                                                                             |   | 24,504 |   | 21,764 |   | 22,440 |
| Other                                                                                                                     |   | 12,847 |   | 8,390 |   | 7,525 |
|                                                                                                                      |   | 261,261 |   | 316,499 |   | 279,111 |
|                                                                                                                      |   |   |   |   |   |   |
| EXPENSES:                                                                                                                 |   |   |   |   |   |   |
| Compensation and related expenses                                                                                         |   | 148,838 |   | 154,881 |   | 143,557 |
| Clearing and exchange fees                                                                                                |   | 6,012 |   | 7,205 |   | 8,870 |
| Communications                                                                                                            |   | 23,620 |   | 23,312 |   | 21,421 |
| Occupancy costs                                                                                                           |   | 15,691 |   | 12,465 |   | 12,722 |
| Interest                                                                                                                  |   | 14,071 |   | 33,122 |   | 21,326 |
| Other                                                                                                                     |   | 21,417 |   | 13,802 |   | 20,749 |
|                                                                                                                      |   | 229,649 |   | 244,787 |   | 228,645 |
|                                                                                                                      |   |   |   |   |   |   |
| Profit before income taxes                                                                                                |   | 31,612 |   | 71,712 |   | 50,466 |
|                                                                                                                      |   |   |   |   |   |   |
| Income tax provision (note 7)                                                                                             |   | 12,462 |   | 30,811 |   | 23,076 |
|                                                                                                                      |   |   |   |   |   |   |
| NET PROFIT FOR YEAR                                                                                                       |   | $19,150 |   | $40,901 |   | $27,390 |
|                                                                                                                      |   |   |   |   |   |   |
|                                                                                                                      |   |   |   |   |   |   |
| Earnings per share (note 8)                                                                                               |   |   |   |   |   |   |
| - basic                                                                                                                   |   | $1.55 |   | $3.38 |   | $2.19 |
| - diluted                                                                                                                 |   | $1.50 |   | $3.29 |   | $2.17 |
|                                                                                                                      |   |   |   |   |   |   |
| The        accompanying notes are an integral part of these        consolidated financial statements.                     |
| F-4                                                                                                                       |

 

| FAHNESTOCK        VINER HOLDINGS INC.        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’        EQUITY        FOR THE YEAR ENDED DECEMBER 31, |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                       |   | 2001 |   | 2000 |   | 1999 |
| (Expressed in        thousands of U.S. dollars)                                                                                                            |
| SHARE CAPITAL                                                                                                                                              |   |   |   |   |   |   |
| Balance at beginning of year                                                                                                                               |   | $29,683 |   | $32,651 |   | $36,525 |
| Issue of Class A non-voting shares                                                                                                                         |   | 4,723 |   | 948 |   | 4,164 |
| Repurchase of Class A non-voting shares for        cancellation                                                                                            |   | (149) |   | (3,916) |   | (8,038) |
|                                                                                                                                                       |   |   |   |   |   |   |
| Balance at end of year                                                                                                                                     |   | $34,257 |   | $29,683 |   | $32,651 |
|                                                                                                                                                       |   |   |   |   |   |   |
| CONTRIBUTED CAPITAL                                                                                                                                        |   |   |   |   |   |   |
| Balance at beginning of year                                                                                                                               |   | $3,499 |   | $3,262 |   | $2,196 |
| Tax benefit from employee stock options        exercised                                                                                                   |   | 614 |   | 237 |   | 1,066 |
|                                                                                                                                                       |   |   |   |   |   |   |
| Balance at end of year                                                                                                                                     |   | $4,113 |   | $3,499 |   | $3,262 |
|                                                                                                                                                       |   |   |   |   |   |   |
| RETAINED EARNINGS                                                                                                                                          |   |   |   |   |   |   |
| Balance at beginning of year                                                                                                                               |   | $188,618 |   | $151,475 |   | $127,602 |
| Net profit for year                                                                                                                                        |   | 19,150 |   | 40,901 |   | 27,390 |
| Dividends paid                                                                                                                                             |   | (4,443) |   | (3,758) |   | (3,517) |
|                                                                                                                                                       |   |   |   |   |   |   |
| Balance at end of year                                                                                                                                     |   | $203,325 |   | $188,618 |   | $151,475 |

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

F-5

 

| FAHNESTOCK VINER HOLDINGS INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEAR ENDED DECEMBER 31, |
|--------------------------------------------------------------------------------------------------------------------|
|                                                                                                               | 2001 |   | 2000 |   | 1999 |
| (Expressed in        thousands of U.S. dollars)                                                                    |
| Cash flows from operating        activities:                                                                       |   |   |   |   |   |
| Net profit for year                                                                                                | $19,150 |   | $40,901 |   | $27,390 |
| Adjustments to reconcile net profit        to net cash provided by (used in) operating activities:                 |   |   |   |   |   |
| Non-cash items included in net        profit:                                                                      |   |   |   |   |   |
| Depreciation and amortization                                                                                      | 3,974 |   | 3,472 |   | 3,527 |
| Loss on disposal of fixed assets                                                                                   | 443 |   | - |   | - |
| Gain on sale of exchange seat                                                                                      | - |   | - |   | (492) |
| Decrease (increase) in operating        assets, net of the effect of acquisitions:                                 |
| Restricted deposits                                                                                                | 319 |   | (320) |   | (80) |
| Securities purchased under        agreement to resell                                                              | 23,500 |   | 51,060 |   | (62,386) |
| Deposits with clearing        organizations                                                                        | (1,769) |   | 38 |   | 1,117 |
| Receivable from brokers and        clearing organizations                                                          | 37,463 |   | 6,110 |   | 30,251 |
| Receivable from customers                                                                                          | (35,404) |   | 7,738 |   | (101,656) |
| Securities owned                                                                                                   | 1,524 |   | 11,701 |   | 25,335 |
| Other assets                                                                                                       | (6,116) |   | (3,244) |   | 7,924 |
| Increase (decrease) in operating        liabilities, net of the effect of acquisitions:                            |   |
| Drafts payable                                                                                                     | (5,842) |   | 1,699 |   | 2,031 |
| Securities sold under agreement to        repurchase                                                               | (23,500) |   | (45,531) |   | 68,367 |
| Payable to brokers and clearing        organizations                                                               | (42,938) |   | 12,999 |   | (25,878) |
| Payable to customers                                                                                               | 63,853 |   | (673) |   | 9,329 |
| Securities sold, but not yet        purchased                                                                      | 498 |   | (10,508) |   | (22,443) |
| Accounts payable and other        liabilities                                                                      | (9,941) |   | (5,504) |   | 5,181 |
| Tax benefit from employee stock        options exercised                                                           | 614 |   | 237 |   | 1,066 |
| Income taxes payable                                                                                               | (3,487) |   | (16,606) |   | 18,007 |
| Cash provided by (used in) operating        activities                                                             | 22,341 |   | 53,569 | (13,410) |
| Cash flows from investing        activities:                                                                       |   |
| Purchase of Josephthal Group, Inc.,        net of cash acquired                                                    | 3,139 |   | - |   | - |
| Purchase of Grand Charter Group,        Incorporated, net of cash acquired                                         | (1,789) |   | - |   | - |
| Purchase of Propp & Company        Inc., net of cash acquired                                                  | - |   | (768) |   | - |
| Proceeds from sale of exchange seat                                                                                | - |   | - |   | 655 |
| Purchase of fixed assets                                                                                           | (1,009) |   | (1,821) |   | (4,622) |
| Cash provided by (used in)        investing activities                                                             | 341 |   | (2,589) |   | (3,967) |
| Cash flows from financing        activities:                                                                       |   |
| Cash dividends paid on Class A        non-voting and Class B shares                                                | (4,443) |   | (3,758) |   | (3,517) |
| Issuance of Class A non-voting        shares                                                                       | 4,723 |   | 948 |   | 4,164 |
| Repurchase of Class A non-voting        shares for cancellation                                                    | (149) |   | (3,916) |   | (8,038) |
| (Decrease) increase in bank call        loans                                                                      | (13,265) |   | (40,423) |   | 24,105 |
| Cash (used in) provided by financing        activities                                                             | (13,134) |   | (47,149) |   | 16,714 |
| Net increase (decrease) in cash and        short-term deposits                                                     | 9,548 |   | 3,831 |   | (663) |
| Cash and cash equivalents,        beginning of year                                                                | 14,669 |   | 10,838 |   | 11,501 |
| Cash and cash equivalents, end of        year                                                                      | $24,217 |   | $14,669 |   | $10,838 |
| The        accompanying notes are an integral part of these        financial statements         F-6                |

FAHNESTOCK VINERHOLDINGS INC.Notes to Consolidated Financial Statements(Expressed in U.S. dollars)December 31, 2001

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 forthe purpose of inclusion in the annual report on Form 10-K. Inall material respects, they conform with accounting principlesgenerally accepted in Canada, which have been used to prepare theconsolidated financial statements for purposes of inclusion inthe 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, these consolidated financialstatements are presented in U.S. dollars.

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 U.S., are as follows:

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

Freedom Investments, Inc.        -discount broker in securities

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

> 
Prime Charter Ltd.        -broker/dealer in securities 

All significant intercompanybalances and transactions have been eliminated in the preparationof the consolidated financial statements.

F-7

*(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 are 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.

*(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 as a result of theacquisitions of Fahnestock, Fahnestock International Inc., Firstof Michigan Capital Corporation, Josephthal Group, Inc. and GrandCharter Group, Incorporated. Until December 31, 2001 goodwill isbeing amortized to operations on a straight-line basis overtwenty years. Negative goodwill arising as a result of theacquisition of Hopper Soliday Corporation and subsidiaries, Reich& Co., Inc. and Propp & Company Inc. is being amortizedto operations on a straight-line basis over twenty years untilDecember 31, 2001.

*(f) Fixed assets*

Fixed assets and stock exchangeseats are stated at cost. Depreciation of furniture and fixturesis provided on the straight-line basis generally over three toseven 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 historic rates.

*(h) Income taxes*

The Company accounts for incometaxes in accordance with Statement of Financial AccountingStandard 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.

 

F-8

 

Securities borrowed transactionsrequire the Company to deposit cash, letters of credit, or othercollateral with the lender. The Company receives cash orcollateral in an amount generally in excess of the market valueof 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 $54,579,000 (2000 - $115,864,000).Included in payable to brokers and clearing organizations aredeposits received for securities loaned of $153,966,000 (2000-$214,696,000).

*(j) Repurchase agreements*

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.

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.

**2. Restricted deposits**

Deposits of $2,393,000 (2000 -$2,712,000) were held at year-end in a special reserve bankaccount for the exclusive benefit of customers in accordance withregulatory requirements. To the extent permitted, these depositsare invested in interest bearing accounts collateralized byqualified securities.

 

F-9

 

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

|                                                                                              | 2001        | 2000        |
|---------------------------------------------------------------------------------------------------|-------------|-------------|
| Securities        owned consist of:                                                               |        |        |
| Corporate        equities                                                                         | $19,268,000 | $20,256,000 |
| Corporate        debt                                                                             | 12,931,000  | 14,444,000  |
| U.S.        government and agency and state and municipal government        obligations           | 15,833,000  | 12,383,000  |
| Options                                                                                           | 3,000       | 28,000      |
| Money        market funds                                                                         | 2,540,000   | 4,432,000   |
|                                                                                              | $50,575,000 | $51,543,000 |
|                                                                                              |        |        |
| Securities        sold, but not yet purchased consist of:                                         |        |        |
| Corporate        equities                                                                         | $4,057,000  | $3,912,000  |
| Corporate        debt                                                                             | 4,683,000   | 3,988,000   |
| U.S.        government and agency and state and municipal government        obligations and other | 181,000     | 253,000     |
|                                                                                              | $8,921,000  | $8,153,000  |

Securities owned and Securitiessold, but not yet purchased, consists of trading and investmentsecurities at market values. At December 31, 2001, the Companyhas pledged securities owned of approximately $176,000 ($532,000in 2000) as collateral to counterparties for stock loantransactions which can be sold or repledged. 

 

**4. Bank call loans**

Bank call loans, primarily payableon demand, bear interest at various rates but not exceeding thebroker call rate, which was 3.5% at December 31, 2001. Theseloans, collateralized by firm and customer securities with marketvalues of approximately $33,189,000 and $100,814,000,respectively, at December 31, 2001 are primarily with two U.S.money center banks. Details of the bank call loans are asfollows:

|                                                        | 2001        | 2000         | 1999        |
|-------------------------------------------------------------|-------------|--------------|-------------|
| Year-end        balance                                     | $13,134,000 | $25,899,000  | $66,322,000 |
| Weighted        interest rate (at end of year)              | 2.07%       | 7.09%        | 4.82%       |
| Maximum        balance (at any month end)                   | $37,666,000 | $170,406,000 | $66,322,000 |
| Average        amount outstanding (during the year) (1)     | $12,836,000 | $77,579,000  | $39,505,000 |
| Weighted        average interest rate (during the year) (2) | 4.80%       | 7.86%        | 6.41%       |

(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, 2001,2000, and 1999 was $9,709,000, $33,061,000 and $19,378,000,respectively.

F-10

**5. 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):

|                                                                                           | 2001        | 2000        | 1999        |
|------------------------------------------------------------------------------------------------|-------------|-------------|-------------|
| 12,337,085        (11,990,969 in 2000 and 12,147,569 in 1999) Class A        non-voting shares | $34,124,000 | $29,550,000 | $32,518,000 |
| 99,680        Class B voting shares                                                            | 133,000     | 133,000     | 133,000     |
|                                                                                           | $34,257,000 | $29,683,000 | $32,651,000 |

Under the Company’s 1996Equity Incentive Plan as amended February 29, 2000("EIP"), the compensation and stock option committee ofthe board of directors of the Company may grant options topurchase Class A non-voting shares to officers and employees ofthe Company and its subsidiaries. Grants of options are made tothe Company’s independent directors on a formula basis.Options are generally granted for a five year term and generallyvest at the rate of 25% of the amount granted for each year held.The aggregate number of Class A non-voting shares that underlieoptions which have been granted and are available under the EIPis 3,230,000.

|                                          | 2001             | 2000                            |
|-----------------------------------------------|------------------|---------------------------------|
|                                          | Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price |
|                                          |             |                            |   |   |
| Options        outstanding, beginning of year | 1,640,024        | $15.46                          | 1,557,669 | $15.18 |
| Options        granted                        | 663,160          | $24.05                          | 229,950 | $16.28 |
| Options        exercised                      | (352,216)        | $13.41                          | (88,000) | $10.86 |
| Options        forfeited                      | (43,465)         | $18.21                          | (59,595) | $15.68 |
| Options        outstanding, end of year       | 1,907,503        | $17.36                          | 1,640,024 | $15.46 |
| Options        vested, end of year            | 304,896          | $12.93                          | 318,045 | $13.95 |

The following table summarizesstock options outstanding and exercisable as at December 31,2001.

| 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 |
|--------------------------|--------------------|----------------------------------------------------|---------------------------------------------------------------|-----------------------------|----------------------------------------------------------|
|                     |               |                                               |                                                          |                        |                                                     |
| $14.50-$18.00            | 1,201,193          | 2.0 years                                          | $15.67                                                        | 294,896                     | $15.87                                                   |
| $19.875-$28.30           | 706,310            | 3.8 years                                          | $23.89                                                        | 10,000                      | $21.19                                                   |
| $14.50-$28.30            | 1,907,503          | 2.8 years                                          | $18.72                                                        | 304,896                     | $16.04                                                   |

 

F-11

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, 2001.

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

Dividend per share Record DatePayment Date____

$0.09 February 9, 2001 February23, 2001

$0.09 May 4, 2001 May 18, 2001

$0.09 August 3, 2001 August 17,2001

$0.09 November 2, 2001 November16, 2001

The Company may purchase up to614,000 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, 2001, the Company purchased 6,100 Class A non-votingshares for a total consideration of $149,000 under a NormalCourse Issuer Bid which expired on July 4, 2001 (244,600 sharesfor $3,916,000 in 2000 and 562,700 shares for $8,038,000 in1999). Unless terminated earlier by the Company, it may continueto purchase shares up to July 4, 2002.

**6. Contributed capital**

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

**7. 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:

 

|                                                                          | 2001        | 2000        | 1999        |
|-------------------------------------------------------------------------------|-------------|-------------|-------------|
|                                                                          |        |        |        |
| Profit        before income tax                                               | $31,612,000 | $71,712,000 | $50,466,000 |
|                                                                          |        |        |        |
| U.S.        federal tax at 35%                                                | $11,092,000 | $25,110,000 | $17,663,000 |
| Canadian        tax at 44%                                                    | -           | -           | -           |
| Combined        state and local tax, net of federal benefit                   | 1,977,000   | 5,846,000   | 4,444,000   |
| Income        taxes before under-noted                                        | 13,069,000  | 30,956,000  | 22,107,000  |
| Tax        effect of non-taxable interest and dividends                       | (143,000)   | (258,000)   | (177,000)   |
| Tax        effect of differences between accounting and taxable        income | (464,000)   | 113,000     | 1,146,000   |
| Income        taxes                                                           | $12,462,000 | $30,811,000 | $23,076,000 |
|                                                                          |        |        |        |
| Profit        before income tax provision                                     |        |        |        |
| Canadian        operations                                                    | $(78,000)   | $(32,000)   | -           |
| U.S.        operations                                                        | $31,690,000 | $71,744,000 | $50,466,000 |

The U.S. income tax provision in2001 is $12,462,000 ($30,811,000 in 2000 and $23,076,000 in1999). The Canadian income tax provision in 2001 is nil (nil in2000 and 1999).

F-12

 

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

|                       | Year ended        December 31, |
|----------------------------|--------------------------------|
|                       | 2001                           | 2000 | 1999 |
|                       |                           |   |   |
| U.S.        Federal tax    | $9,420,000                     | $21,817,000 | $16,239,000 |
| State        and local tax | 3,042,000                      | 8,994,000 | 6,837,000 |
| Total                      | $12,462,000                    | $30,811,000 | $23,076,000 |

Aggregate deferred tax assets,which relate primarily to fixed assets and non-deductibleexpenses, are included in other assets and amounted toapproximately $4,142,000 ($4,287,000 in 2000).

On a cash basis, the Company paidincome taxes for the years ended December 31, 2001, 2000 and 1999in the amounts of $14,918,000, $46,163,000 and $4,700,000,respectively.

**8. Earnings per share**

|                                                       | 2001        | 2000        | 1999        |
|------------------------------------------------------------|-------------|-------------|-------------|
| Basic        weighted average number of shares outstanding | 12,348,051  | 12,108,798  | 12,479,550  |
| Stock        options                                       | 421,783     | 308,053     | 114,902     |
| Diluted        common shares                               | 12,769,834  | 12,416,851  | 12,594,452  |
|                                                       |        |        |        |
| Net        profit                                          | $19,150,000 | $40,901,000 | $27,390,000 |
|                                                       |        |        |        |
| Basic        profit per share                              | $1.55       | $3.38       | $2.19       |
| Diluted        profit per share                            | $1.50       | $3.29       | $2.17       |

The dilutive impact of stockoptions has been determined by application of the treasury stockmethod.

**Stock-based compensation**

FASB Statement No.123"Accounting for Stock-Based Compensation" ("SFAS123") was issued in 1995, and changed the method foraccounting for stock compensation plans similar to those of theCompany. Adoption of SFAS 123’s fair value recognitionmethod is optional. The Company has chosen to continue to applyAccounting Principles Board Opinion No. 25, Accounting for StockIssued to Employees, and related interpretations in accountingfor its stock compensation plans.

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

|                            | December 31,        2001 | December        31,2000 | December 31,        1999 |
|---------------------------------|--------------------------|-------------------------|--------------------------|
|                            | As Reported              | Proforma                | As Reported              | Proforma | As Reported | Proforma |
|                            |                     |                    |                     |   |   |   |
| Net        profit               | $19,150                  | $17,267                 | $40,901                  | $39,518 | $27,390 | $26,215 |
| Basic        profit per share   | $1.55                    | $1.40                   | $3.38                    | $3.26 | $2.19 | $2.10 |
| Diluted        profit per share | $1.50                    | $1.35                   | $3.29                    | $3.18 | $2.17 | $2.08 |

 

F-13

For purposes of the proformapresentation, the Company determined fair value using an optionpricing model with the following weighted average assumptions forgrants in 2001, 2000 and 1999, respectively: risk-free interestrates ranging from 3.76% to 5.07%, 5.11% to 6.80% and 4.78% to6.34%; expected dividend yield of 1.4%,1.5% and 1.8%, expectedlife of 5 years and expected volatility ranging from 27% to 29%,21% to 29% and 24% to 48%. The weighted average fair value ofoptions granted during 2001, 2000 and 1999, respectively was$3,741,000, $952,000 and $3,889,000. The fair value is beingamortized over five years on an after-tax basis, where applicablefor purposes of proforma presentation. Stock options generallyexpire five years after the date of grant or three months afterthe date of retirement, if earlier. Stock options generally vestover a five year period with 0% in year one, 25% of the sharesbecoming exercisable on each of the next three anniversaries ofthe grant date and the balance vesting in the last six months ofthe option life. The vesting period is at the discretion of theCompensation and Stock Option Committee and is determined at thetime of grant.

The effects of applying SFAS 123in this proforma presentation are not indicative of futureamounts because it does not take into consideration future grantsor any difference between actual and assumed forfeitures.

 

**9. 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 are as follows:

| 2002                       | $14,508,000 |
|----------------------------|-------------|
| 2003                       | 12,583,000  |
| 2004                       | 10,243,000  |
| 2005                       | 8,259,000   |
| 2006        and thereafter | 42,150,000  |
| Total                      | $87,743,000 |

Certain of the leases containprovisions for rent escalation based on increases in costsincurred by the lessor. At December 31, 2001, the present valueof future minimum rentals under capitalized lease agreements was$987,000.

(b) The Company's rent expense forthe years ended December 31, 2001, 2000 and 1999 was $10,909,000,$8,233,000 and $8,182,000, respectively.

(c) The Company, through itssubsidiaries, maintains a defined contribution plan coveringsubstantially all full-time U.S. employees. The Fahnestock planprovides that the Company 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.

The Company made contributions tothe plans of $1,525,000, $2,503,000 and $2,692,000 in 2001, 2000and 1999, respectively.

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 $1,716,000 at December 31, 2001.

 

F-14

 

(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 2001 total approximately$1,270,000 ($900,000 in 2000) and will normally vest five yearsfrom the end of the related fiscal year. The liability is beingrecognized on a straight-line basis over the vesting period. Theamount expensed in 2001 was $182,000.

(e) At December 31, 2001, theCompany has collateralized and uncollateralized letters of creditfor $39,500,000. Collateral for these letters of credit includemarketable securities of approximately $25,835,000, pledged totwo financial institutions. 

(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 principalsubsidiary, Fahnestock, is subject to the uniform net capitalrequirements of the Securities and Exchange Commission("SEC") under Rule 15c3-1 (the "Rule").Fahnestock computes its net capital requirements under thealternative method provided for in the Rule which requires thatFahnestock maintain net capital equal to two percent of aggregatecustomer related debit items, as defined in SEC Rule 15c3-3. AtDecember 31, 2001, Fahnestock had net capital of $167,843,000which was $157,658,000 in excess of the $10,185,000 required tobe 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, 2001. The Company had no deposit requirements as of December31, 2001.

**10. Financial instruments withoff-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.

 

F-15

 

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, 2001,the Company had approximately $643,000,000 of customer securitiesunder customer margin loans that are available to be pledged ofwhich the Company has repledged approximately $104,916,000 undersecurities loan agreements. In addition, the Company has receivedcollateral of approximately $51,712,000 under securities borrowagreements of which the Company has repledged approximately$35,551,000 as collateral under securities loans agreements.Included in receivable from brokers and clearing organizationsare receivables from three major U.S. broker-dealers totalling$32,997,000.

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. Net revenuesfrom principal transactions, including derivatives, for the yearended December 31, 2001 included net revenues from tradingequities of $35,485,000 ($71,830,000 in 2000 and $57,078,000 in1999) and net revenues from trading fixed income securities of$20,889,000 ($12,590,000 in 2000 and $13,936,000 in 1999). Netgains from derivatives for the year ended December 31, 2001 wereapproximately $2,302,000.

Futures contracts, comprisedmainly of stock index futures, represent commitments to purchaseor sell securities at a future date and at a specified price.Credit risk and market risk exist with respect to theseinstruments. Credit risk associated with the contracts is limitedto amounts recorded in the balance sheet. Notional or contractualamounts are used to express the volume of these transactions, anddo not represent the amounts potentially subject to market risk.At December 31, 2001, the Company had open contracts to sellstock index futures contracts with notional values ofapproximately $5,746,000 ($10,012,000 in 2000). The fair value ofthese derivative financial instruments included in brokers andclearing organizations at December 31, 2001 was approximately$366,000 ($461,000 in 2000), and the monthly average fair valuesof the instruments during the year were assets of $70,000 andliabilities of $203,000 (assets of $333,000 and liabilities of$466,000 in 2000). 

Cash is deposited to satisfyinitial margin requirements for open futures contracts and isincluded in receivable from brokers and clearing organizationswith any gain or loss from the unsettled futures transactions.

At December 31, 2001 the Companyhad outstanding commitments to buy and sell of $2,393,000 and$1,368,000, respectively, of mortgage-backed securities on a whenissued basis. These commitments have off-balance sheet riskssimilar to those described above.

 

 

F-16

 

**11. Impact of Recently IssuedAccounting Standards**

In June 2001, the FinancialAccounting Standards Board issued Statements of FinancialAccounting Standards (SFAS) No. 141, " BusinessCombinations", and No. 142, "Goodwill and OtherIntangible Assets". SFAS 141 mandates the purchase method ofaccounting be used for all business combinations initiated afterJune 30, 2001 and establishes specific criteria for therecognition of intangible assets separately from goodwill. SFAS142 addresses the accounting for goodwill and other intangibleassets subsequent to their acquisition. Under the new rules,goodwill and other intangible assets deemed to have indefinitelives will no longer be amortized but, instead, will be tested atleast annually for impairment. All other intangible assets willcontinue to be amortized over their estimated useful lives. TheCompany has adopted SFAS 141 fully and intends to adopt SFAS 142commencing January 1, 2002. In connection with the adoption ofSFAS 142, the Company’s recorded amount of goodwill of$9,284,000 will no longer be subject to amortization but willinstead be periodically measured for impairment. The expectedimpact on the fiscal 2002 results of operations is thediscontinuation of recording approximately $774,000 ofamortization expense associated with goodwill, resulting in anafter tax effect of $449,000 on net income ($0.04 per share).

New accounting standards issuedbut not effective would not have a material impact on theCompany’s financial statements. 

**12. Acquisitions**

> 
(a) On September 17, 2001        a subsidiary of the Company acquired approximately 91.6%        of the outstanding common stock of Josephthal Group, Inc.        ("Josephthal"). On October 15, 2001, the        Company acquired substantially all of the remaining        outstanding common shares. The Company paid $1 for the        stock and assumed liabilities of $23,885,000. The results        of Josephthal’s operations since September 17, 2001        have been included in the Company’s consolidated        financial statements. Josephthal indirectly owns 100% of        Josephthal & Co., Inc., a private New York based,        full service broker-dealer founded in 1910 with        approximately 265 financial consultants in 25 offices        across the United States at the time of closing. The        acquisition furthers the Company’s growth and        expansion and significantly extends its private client        network as well as providing additional managerial        expertise. The acquisition was accounted for by the        purchase method as follows:

| Cash                                                                                  | $3,139,000   |
|---------------------------------------------------------------------------------------|--------------|
| Securities        owned, at market                                                    | 277,000      |
| Receivable        from brokers and dealers                                            | 6,425,000    |
| Furniture,        equipment and leasehold improvements, net                           | 2,864,000    |
| Deposits        and other assets                                                      | 6,238,000    |
|                                                                                  | 18,943,000   |
| Deduct:                                                                               |         |
| Securities        sold but not yet purchased, at market                               | (220,000)    |
| Accounts        payable and accrued liabilities                                       | (23,665,000) |
| Excess        of cost over fair value of assets acquired allocated to        goodwill | $4,942,000   |

 

 

 

 

F-17

 

> 
(b) On November 9, 2001 a        subsidiary of the Company acquired 100% of the        outstanding common shares of Grand Charter Group,        Incorporated ("Grand Charter") for cash        consideration of $2,892,000. The results of Grand        Charter’s operations since that date have been        included in the Company’s consolidated financial        statements. Grand Charter owns 100% of Prime Charter        Ltd., a twelve-year-old full service securities firm with        approximately 100 financial consultants operating from        offices in New York City and Boca Raton, Florida. The        acquisition furthers the Company’s growth and        expansion in its private client business and provides        additional managerial expertise. The acquisition was        accounted for by the purchase method as follows:

| Cash        and cash equivalents                                                      | $1,103,000  |
|---------------------------------------------------------------------------------------|-------------|
| Securities        owned, at market                                                    | 279,000     |
| Receivable        from clearing organizations                                         | 1,075,000   |
| Furniture,        equipment and leasehold improvements, net                           | 417,000     |
| Deposits        and other assets                                                      | 3,028,000   |
|                                                                                  | 5,902,000   |
| Deduct:                                                                               |        |
| Short-term        bank loans                                                          | (500,000)   |
| Securities        sold but not yet purchased, at market                               | (50,000)    |
| Accounts        payable and accrued liabilities                                       | (3,086,000) |
| Fair        value of assets acquired                                                  | 2,266,000   |
| Purchase        price paid                                                            | 2,892,000   |
| Excess        of cost over fair value of assets acquired allocated to        goodwill | $626,000    |

 

The acquisitions of Josephthal andGrand Charter bring a total of approximately 375 financialconsultants and 27 additional offices, and represent asignificant increase to the Company’s private clientbusiness. Economic conditions led to financial difficulty at bothJosephthal and Grand Charter.

Presented below are unauditedproforma consolidated results of operation. Amounts presented for2001 and 2000 give effect to the acquisitions of JosephthalGroup, Inc. and Grand Charter Group, Incorporated as if thetransactions were consummated at the beginning of each of theperiods presented. The proforma information is for comparativepurposes only and is not necessarily indicative either of theactual results that would have occurred if the acquisition hadbeen consummated at the beginning of the period presented, or offuture operations of the combined companies. The Companyanticipates certain cost savings as a result of the consolidationof the operations of the acquired businesses with theCompany’s business.

| Year        ended December 31,    | 2001         | 2000         |
|-----------------------------------|--------------|--------------|
|                              |         |         |
| Revenue                           | $344,198,000 | $522,738,000 |
| Profit        before tax          | $21,171,000  | $73,947,000  |
| Net        profit                 | $14,816,000  | $42,078,000  |
| Basic        earnings per share   | $1.20        | $3.47        |
| Diluted        earnings per share | $1.16        | $3.39        |

F-18

 

**13. Related Party Transactions**

The Company has notes and accountsreceivable for employees, net, of approximately $12,490,000 atDecember 31, 2001. These amounts will be forgiven over a threeyear period from the initial date of the loan and are contingenton their continued employment with the Company. The unamortizedpotion of the notes become due on demand in the event theemployee departs during the three-year period.

**14. 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 92branches, including commission and fee income earned on clienttransactions; Capital Markets which includes market-makingactivities in over-the-counter equities, institutional trading inboth fixed income and equities, structured assets transactions,bond trading, trading in mortgage-backed securities, corporateunderwriting activities, public finance activities, and syndicateparticipation; Interest which is derived from client marginaccounts, stock loan activities and financing activities; andAsset Management which includes fees from money market funds andthe investment management services of Fahnestock’s assetmanagement divisions employing various programs to professionallymanage client assets either in individual accounts or in funds.The Company evaluates the performance of its segments andallocates resources to them based upon profitability.

The table below presentsinformation about the reported revenue and operating income(profit before income taxes) of the Company for the years endedDecember 31, 2001, 2000 and 1999. 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, |
|--------------------------|--------------------------------|
|                     | 2001                           | 2000 | 1999 |
| Revenue:                 |                           |   |   |
| Private        Client    | $140,028,000                   | $154,698,000 | $148,584,000 |
| Capital        Markets   | 73,752,000                     | 82,700,000 | 74,027,000 |
| Asset        Management  | 15,266,000                     | 13,347,000 | 12,177,000 |
| Interest                 | 31,560,000                     | 60,817,000 | 39,753,000 |
| Other                    | 655,000                        | 4,937,000 | 4,570,000 |
|                     |                           |   |   |
| Total                    | $261,261,000                   | $316,499,000 | $279,111,000 |
|                     |                           |   |   |
| Operating        Income: |                           |   |   |
| Private        Client *  | $(5,912,000)                   | $5,065,000 | $5,220,000 |
| Capital        Markets   | 12,835,000                     | 26,537,000 | 16,307,000 |
| Asset        Management  | 10,512,000                     | 8,168,000 | 7,760,000 |
| Interest                 | 15,836,000                     | 25,657,000 | 18,382,000 |
| Other                    | (1,659,000)                    | 6,285,000 | 2,797,000 |
|                     |                           |   |   |
| Total                    | $31,612,000                    | $71,712,000 | $50,466,000 |

> 
* Losses in fiscal 2001 in the Private Client segment are    the result of operating losses and acquisition costs relating    to Josephthal and Prime Charter, as well as business    disruption after September 11, 2001.

F-19

 

**15. Subsequent events**

(a) On January 24, 2002, a cashdividend of U.S.$0.09 per share (totalling $1,129,000) wasdeclared payable on February 22, 2002 to holders of Class Anon-voting and Class B shares of record on February 8, 2002.

(b) On January 28, 2002, theCompany announced that its wholly-owned subsidiary FreedomInvestments, Inc. agreed to acquire the business operated byBUYandH0LD Securities Corporation and affiliates for cashconsideration of $2,000,000 plus the market value of securitiesowned by BUYandHOLD at the date of closing. The closed on March12, 2002.

BUYandHOLD is a privately heldretail online brokerage firm headquartered in Edison, New Jerseywhich launched the first dollar-based equity investing platformin 1999 and currently has a client base of over 125,000 accounts.

**16. Quarterly Information(unaudited)**

(Expressed in thousands ofdollars, except per share amounts)

|                                                                                   | Fiscal        Quarters |
|----------------------------------------------------------------------------------------|------------------------|
| **Year        ended December 31, 2001**                                                | Fourth                 | Third | Second | First | Total |
| 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 |
|                                                                                   |                   |   |   |   |   |
| **Year        ended December 31, 2000**                                                |                   |   |   |   |   |
| Revenue                                                                                | $74,218                | $69,465 | $69,424 | $103,392 | $316,499 |
| Profit        before income taxes                                                      | $11,118                | $11,864 | $14,405 | $34,325 | $71,712 |
| Net        profit                                                                      | $7,654                 | $6,375 | $8,292 | $18,580 | $40,901 |
| Earnings        per share:                                                             |                   |   |   |   |   |
| Basic                                                                                  | $0.63                  | $0.53 | $0.68 | $1.52 | $3.38 |
| Diluted                                                                                | $0.61                  | $0.51 | $0.67 | $1.50 | $3.29 |
| Dividends        per share                                                             | $0.08                  | $0.08 | $0.08 | $0.07 | $0.31 |
| Market        price of Class A Shares:                                                 |                   |   |   |   |   |
| High                                                                                   | $24.10                 | $23.00 | $18.875 | $17.125 | $24.10 |
| Low                                                                                    | $19.875                | $18.4375 | $16.50 | $14.5625 | $14.5625 |
|                                                                                   |                   |   |   |   |   |
| The        price quotations above were supplied by the New York        Stock Exchange. |

F-20

EXHIBIT INDEX

Unless designated by an asteriskindicating that such document has been filed herewith, theExhibits listed below have been heretofore filed by the Companypursuant to Section 13 or 15(d) of the Exchange Act and arehereby incorporated herein by reference to the pertinent priorfiling.

| Number       | Description                                                                                                                                                                                                                                                                                 | Page   |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 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).                                                                                                                      |   |
| 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)                     |   |
| 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 (filed herewith*)                                                                                                                                                                |   |
| 10(o)        | Performance-Based        Compensation Agreement between Fahnestock Viner Holdings        Inc. and Albert G. Lowenthal dated January 1, 2001 (filed        herewith*)                                                                                                                        |   |
| 21           | Subsidiaries        of the registrant (filed herewith) *                                                                                                                                                                                                                                    |   |

E-1