Description of the Plan
The following description of the Fahnestock & Co., Inc. 401(k) Plan (the "Plan") provides only general information. Participants should refer to the plan agreement for a more complete description of the Plan’s provisions.
General
The Plan was established on January 1, 1987 and was amended and restated to add a profit-sharing provision effective January 1, 1991. The Plan was subsequently amended effective January 1, 1998 to change the rates used in computing the discretionary profit sharing contribution from Fahnestock & Co., Inc. (the "Company").
Effective January 1, 1999, employees of the First of Michigan Division of the Company became eligible to participate in the Plan.
Effective July 1, 2002, the following plans were merged into the Plan:
First of Michigan A Division Fahnestock & Co., inc. Capital Accumulation 401(k) Plan
Josepthal & Co., Inc. Employee Savings Plan
Prime Charter Limited Tax Deferred Savings Plan
Buy&hold.com Inc. 401(k) Retirement Plan
The Plan document was amended effective July 1, 2002. Nationwide Trust Company was appointed as trustee and The 401(k) Company was hired to administer the Plan.
Employees of the Company who are 18 and have completed one year of service shall be eligible to receive an allocation of the discretionary profit sharing contribution. Employees of the Company who are 18 and have completed six months of service shall be eligible to make elective deferrals into the Plan.
Allocation provisions
Under the terms of the Plan, the individual makes all investment decisions with respect to his/her account balance, subject to available investment alternatives. Participants should refer to the respective fund prospectus for a more complete description of the investment objectives. For the period January 1, 2002 to June 30, 2002 these investment alternatives included:
Bond Fund - Funds are invested in U.S. government and high quality U.S. corporate securities.
Money Market Fund - Funds are invested in the Fahnestock Prime Cash Series Fund.
Vanguard Index Trust Fund - Funds are invested in shares of a registered investment company that invests in large capitalization stocks that is designed to replicate the performance of the Standard and Poors 500 Index.
AIM Value Fund - Funds are invested in shares of a registered investment company that seeks long term growth by investing in under valued securities.
MFS Emerging Growth Fund - Funds are invested in shares of a registered investment company that seeks long term growth by primarily investing in stocks of small and emerging companies.
Templeton World Fund - Funds are invested in shares of a registered investment company that seeks long term growth by investing in companies throughout the world.
Putnam Fund for Growth and Income - Funds are invested in shares of a registered investment company that seeks capital growth and current income.
Certificate of Deposit Fund - Funds are invested in certificates of deposits and the Fahnestock Prime Cash Series Fund.
Fahnestock Viner Holdings Inc. Common Stock Fund - Funds are invested in common stock of the Company’s parent, Fahnestock Viner Holdings Inc.
Ivy U.S. Emerging Growth Fund - Funds are invested in shares of a registered investment company that seeks long-term capital growth primarily through investment in equity securities.
For the period July 1, 2002 to December 31, 2002, these investment alternatives include:
Federated Cash Trust Series - Funds are invested in corporate money market securities
PIMCO Total Return Fund - Funds are invested in a portfolio of at least 65% debt securities and up to 20% of securities denominated in foreign currencies.
Delaware Group: Real Estate Investment Trust - Funds are invested at least 65% in equities of real-estate investment trusts (REITs). It may also invest in other real-estate industry operating companies (REOCs).
Washington Mutual Investors Fund – Funds are invested in common stocks or equivalent securities that are legal for the investment of trust funds in the District of Columbia
Barclays Global Investors Equity Index Fund – The fund attempts to duplicate the investment results of the S&P 500 Index. The Index is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange.
First Trust Portfolio - S&P Target 24 Portfolio Fund – Funds are invested in 24 targeted companies of the S&P 500 Index.
Growth Fund of America - The fund invests primarily in common stocks which management believes are reasonably priced and represent solid long-term investment opportunities. The fund may invest up to 10% of assets in securities of issuers domiciled outside of the U.S. and Canada, and not included in the S&P 500 index. It may also invest up to 10% of assets in debt securities rated below investment-grade.
Lord Abbett Mid Cap Value Fund - The fund normally invests at least 65% of assets in equities of companies with market capitalizations ranging from $500 million to $5 billion. Management typically invests in securities that it believes have strong appreciation potential based on the following factors: changes in economic and financial conditions, new or improved products or services, changes in management, or improved efficiencies.
Artisan Mid Cap Fund - The fund primarily invests in common stocks of mid-size companies, which it defines as falling within the range of companies in the S&P MidCap 400 index.
First Trust Portfolio - Value Line Target 25 Portfolio Fund – Funds are invested in 25 targeted companies of the S&P 500 Index.
Strong Advisor Small Cap Value Fund - The fund normally invests at least 80% of net assets in small capitalization companies that the fund's management believe are undervalued relative to the market based on earnings, cash flow, or asset value.
AIM Small Cap Growth Fund - The fund normally invests at least 65% of assets in U.S. equities that have a market cap less than that of the largest company in the Russell 2000 index. It may also invest up to 35% of assets in U.S. equities that have a market cap greater than that of the largest company in the Russell 2000 index, and in investment-grade non-convertible debt securities, U.S. government securities and high-quality money markets.
Oppenheimer Global Fund - The fund invests primarily in common stocks and convertible securities issued by U.S. and foreign companies. It ordinarily maintains investments in at least three countries.
Putnam International Growth Fund - The fund normally invests at least 65% of assets in equity securities of companies located outside of the United States. The fund may invest in both developed and emerging markets.
MFS International New Discovery Fund - The fund normally invests at least 65% of assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts, of foreign issuers. The fund normally invests in at least three different countries.
Fahnestock Viner Holdings Inc. Common Stock Fund - Funds are invested in common stock of the Company’s parent, Fahnestock Viner Holdings Inc.
Certificate of Deposit Fund - Funds are invested in certificates of deposit.
Company contributions
As discussed above, the Company may contribute to the Plan a discretionary profit-sharing amount (the "Employer Regular Contribution"). The Employer Regular Contribution is determined by its Board of Directors and is subject to guidelines set forth in the Plan description.
Employer Regular Contributions for the year ending December 31, 2002 were determined as follows:
0% above $160,000 of a participant’s compensation.
If participants elect to receive their Employer Regular Contribution in the form of common stock of Fahnestock Viner Holdings Inc. ("Holdings"), the Company may make an additional contribution of Holdings common stock up to or equal to 15 percent of the purchase price of the common stock (the "Employer Stock Contribution") at the discretion of the Directors of the Board.
For the year ended December 31, 2002 the total Company contribution was approximately $3,483,261.
Employees may make salary deferral contributions of up to 14% of compensation. Current law limits participant deferrals to $12,000 for the plan year ended December 31, 2002.
Vesting
All participants are immediately and fully vested in all Employee Elective Deferrals and the income derived from the investment of such contributions.
Participants will be vested in Employer Regular Contributions plus the income thereon upon the completion of service with the Company or an affiliate at the following rate:
Less than 3 years of service 0%
After 3 years of service 20%
After 4 years of service 40%
After 5 years of service 60%
After 6 years of service 80%
After 7 years of service 100%
All years of service with the Company or an affiliate are counted to determine a participant’s nonforfeitable percentage except years of service before the Plan was restated in 1991. Participants will be 100 percent vested in the additional portion of the Employer Stock Contributions only upon completion of 5 years service.
At December 31, 2002, forfeited nonvested accounts totaled approximately $170,869. These accounts will be used to reduce future employer contributions.
Company Qualified Matching and Qualified Non-Elective Contributions as defined in the Plan document, if required, are fully vested when made. No payments under these provisions were required during the year ended December 31, 2002.
Notwithstanding the vesting schedules specified above, with respect to retirement, a participant’s right to his or her accounts will be nonforfeitable upon the attainment of: the later of age 65 or the fifth anniversary of the participation commencement date; death; or disability, as defined.
Payment of benefits
Payment of vested benefits under the Plan will be made in the event of a participant’s termination of employment, death, retirement, or financial hardship and may be paid in either a lump-sum distribution or over a certain period of time as determined by IRS rules or by participant election.
Loans to participants
Loans are made available to all participants. Loans must be adequately collateralized using not more than fifty percent of the participant’s vested account balance and bear a interest rate of the current Treasury rate plus 4%. Loan principal and interest payments are applied to fund balances from which proceeds were drawn unless otherwise specified by the participant.
Income tax status
The Plan received a determination letter on August 2, 1994, from the Internal Revenue Service (IRS) qualifying the Plan under the IRS code as exempt from Federal income taxes. The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan continues to be designed and operated in compliance with the applicable requirements of the Internal Revenue Code.
Significant Accounting Policies
Securities transactions are recorded on a trade date basis with gains and losses reflected in income. Interest and dividend income are recorded on the accrual basis.
Investments are stated at fair value, based on quoted market prices for valuation of common stock, debt obligations, and mutual funds. Assets held in money market accounts are valued at cost which approximates fair value.
Benefits are recorded when paid.
Expenses related to loan origination and maintenance are paid to the administrator.
Life insurance policies are recorded at cash surrender value.
The Plan presents in the statement of changes in net assets available for benefits the net depreciation in the fair value of its investments which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of additions and contribution to, and deductions from net assets during the reporting period. Actual results could differ from those estimates.
The Plan provides for various investment options in any combination of stocks, bonds, fixed income securities, mutual funds, and other investment securities. Investment securities are subject to interest rate, market, foreign exchange and credit risks.
Due to the risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in the near term could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits and the statement of changes in net assets available for benefits.
Related Parties
For the period January 1, 2002 to June 30, 2002, the Company acted as investment advisor and administrator. It was the custodian of the Plan assets in the Bond Fund, the Money Market Fund, the Certificate of Deposit Fund, and the Fahnestock Viner Holdings Inc. Common Stock Fund. The Company executed the Plan’s transactions, and provided accounting and other administrative services for which no charge is made to the Plan.
The Trustees of the Plan are also officers and directors of the Company.
Concentration of Investments
The following investments represent 5% or more of net assets available for plan benefits as of December 31, 2002:
