Filed by Friedman, Billings, Ramsey Group, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 under the Securities Act of 1934
Subject Company: FBR Asset Investment Corporation
Commission File No: 001-15049
On November 19, 2002, Friedman, Billings, Ramsey Group, Inc. ("FBR Group") and
FBR Asset Investment Corporation ("FBR Asset") distributed the following
information:
FORWARD LOOKING INFORMATION
Statements concerning projections, future performance, developments, events,
market forecasts, revenues, expenses, earnings, run rates and any other guidance
on present or future periods constitute forward-looking statements. These
forward-looking statements are subject to a number of factors, risks, and
uncertainties that might cause actual results to differ materially from stated
expectations or current circumstances. These factors include, but are not
limited to, the overall environment for interest rates, repayment speeds within
the mortgage-backed securities market, risk associated with equity investments,
the demand for public offerings, activity in the secondary securities market,
the high degree of risk associated with technology and other venture capital
investments, competition for business and personnel, and general economic,
political, and market conditions. Additional information concerning factors that
could cause actual results to differ materially is contained in FBR Asset's
Annual Report on Form 10-K and quarterly reports on Form 10-Q, and FBR Group's
Annual Report on Form 10-K and quarterly reports on Form 10-Q.
PROXY INFORMATION
In connection with the proposed transactions, Friedman, Billings, Ramsey Group,
Inc. and FBR Asset Investment Corporation will file a joint proxy statement/
prospectus with the Securities and Exchange Commission. Investors and security
holders are urged to carefully read the joint proxy statement/prospectus
regarding the proposed transactions when it becomes available, because it will
contain important information. Pro forma information contained in the following
materials may be changed in the joint proxy statement/prospectus. Investors and
security holders may obtain a free copy of the joint proxy statement/prospectus
(when it is available) and other documents containing information about
Friedman, Billings, Ramsey Group, Inc. and FBR Asset, without charge, at the
SEC's web site at http://www.sec.gov. Free copies of both companies' filings may
be obtained by directing a request to 1001 Nineteenth Street North, Arlington,
Virginia 22209, Attention: Investor Relations.
PARTICIPANTS IN SOLICITATION
FBR Group, FBR Asset and their respective directors, executive officers and
other members of their management and employees may be soliciting proxies from
their respective stockholders in connection with the proposed merger.
Information concerning FBR Group's participants in the solicitation is set forth
in FBR Group's proxy statement for its annual meeting of stockholders, filed
with the SEC on May 30, 2002. Information concerning FBR Asset's participants in
the solicitation is set forth in FBR Asset's proxy statement for its annual
meeting of stockholders, filed with the SEC on April 23, 2002.
[FBR Logo] NEW FBR GROUP STRUCTURE
________________________________________________________________________________
On November 19, 2002, Friedman, Billings, Ramsey Group, Inc. ("FBR Group") and
FBR Asset Investment Corporation ("FBR Asset") distributed the following
information with respect to certain tax implications of the proposed merger
between the parties:
POST-DEAL STRUCTURE;
- New FBR Group will be a REIT owning a series of Taxable REIT
subsidiaries ("TRSs") that conduct activities that are not REIT-
eligible, mainly the existing business of FBR Group. This post merger
structure is exactly the type of structure that was intended and
contemplated when Congress enacted the TRS provisions.
- The merger should be thought of as combining a REIT with a group of
taxable corporations. The REIT-eligible assets and activities will
continue to be held in a REIT format. The assets and activities that
are not REIT-eligible will be held in TRSs, where the profit from those
assets and activities will be fully subject to corporate income tax and
may be retained.
- New FBR Group will manage the existing and new TRSs so that they fully
comply with the applicable tax rules.
- Note when reading the various REIT rules below that New FBR Group will
have total assets in excess of $6 billion. Hence the value of the TRSs
or securities owned which are obligations or capital securities of the
TRS could reach approximately $1.2 billion or higher and still fall
within the rules.
________________________________________________________________________________
Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION.
PAGE 1
[FBR Logo] REIT RULE GUIDE
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- There are four REIT tests that are applicable to TRSs
- 20% limitation on aggregate TRS value relative to total asset value
- 25% limitation on "bad" asset value relative to total asset value
- 95% gross income test
- 75% gross income test
- In applying all of these tests, the REIT and all of its subsidiaries other
than its TRSs generally are consolidated. The TRSs, however, are not
consolidated with the REIT for tax purposes, but instead are treated as
separate entitites. Under both the asset and income tests, the REIT's actual
ownership of equity and debt securities of the TRSs is taken into account.
- 20% limitation on TRSs: Although a REIT may own up to 100% of the stock and
----------------------
securities of one or more TRSs, the aggregate value of all TRS equity and debt
securities held by the REIT may not exceed 20% of the total value of the REIT's
gross assets. This limitation applies at the end of each calendar quarter.
- 25% "bad" asset limitation: Under the 75% asset test, at least 75% of the
--------------------------
value of the REIT's gross assets must consist of "good" assets. TRS stock and
securities are considered "bad" assets under this asset. Thus, TRS stock and
securities, along with other "bad" assets, cannot exceed 25% of the total value
of the REIT's gross assets. This limitation also applies at the end of each
calendar quarter.
- Gross income tests: Because TRSs are not consolidated with the REIT for
------------------
purposes of the income tests, income earned by the TRSs does not directly
impact the REIT's compliance with the gross income tests. Dividents paid by a
TRS to the REIT, however, do impact the gross income tests. TRS dividents are
"good" income under the 95% gross income test, but "bad" income under the 75%
gross income test, regardless of what type of underlying income the TRS earned.
The income tests apply on a calendar year basis.
- Profits earned by TRSs do not impact the REIT's distribution requirement until
they are paid as a dividends to the REIT. TRS dividends are included in the
REIT's taxable income for purposes of the distribution test.
- Because a TRS is subject to corporate income tax, while a REIT is not, there
are strict rules regarding the REIT's need to deal with its TRSs on an arm's-
length basis. Significant penalties apply to any non-arm's-length transactions
between a REIT and a TRS that have the effect of reducing the TRS's tax
liability. In addition, there are limits on the ability of a TRS to deduct
interest paid to a REIT.
________________________________________________________________________________
Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION.
PAGE 2
[FBR Logo] 1 YR. CMT W/ MARGIN VS. 1 MO. LIBOR
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[Line graph depicting the following data]
May-82 0.86
Nov-82 1.94
May-83 2.29
Nov-83 2.70
May-84 3.04
Nov-84 2.84
May-85 2.67
Nov-85 1.91
May-86 2.07
Nov-86 2.00
May-87 1.88
Nov-87 1.06
May-88 2.29
Nov-88 1.31
May-89 1.42
Nov-89 1.16
May-90 2.22
Nov-90 0.81
May-91 2.41
Nov-91 2.19
May-92 2.49
Nov-92 1.83
May-93 2.62
Nov-93 2.34
May-94 3.26
Nov-94 3.10
May-95 1.99
Nov-95 1.63
May-96 2.58
Nov-96 2.07
May-97 2.34
Nov-97 1.80
May-98 2.01
Nov-98 1.16
May-99 2.28
Nov-99 1.47
May-00 1.97
Nov-00 1.37
May-01 1.82
Nov-01 2.19
May-02 2.75
Nov-02 2.33
Note: CMT is Constant Maturity Treasury with 225bps margin
Source: Bloomberg, Federal Reserve
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Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION.
PAGE 3
[FBR Logo] BROKER/DEALER COMPARABLES
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$ MILLIONS MARKET CAP(1) 2003E P/E PRICE/BOOK INDICATED DIV. YIELD
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FBR PRO FORMA $1,258 6.4x 1.23x 14.2%
Morgan Stanley 45,596 13.2 2.13 2.2
Goldman Sachs 37,117 16.2 1.97 0.6
Merrill Lynch 34,058 13.1 1.53 1.6
Lehman Bros. 13,568 12.8 1.52 0.6
Bear Stearns 8,892 11.5 1.49 1.1
Legg Mason(2) 3,331 16.1 2.85 0.9
A.G. Edwards 2,698 15.9 1.66 1.9
Raymond James(3) 1,478 17.6 1.79 1.2
Jefferies Group 1,102 15.3 1.88 0.5
SWS Group 218 NA 1.15 3.1
Stifel Financial 82 NA 0.97 1.0
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MEAN BROKER/DEALER $13,467 14.6x 1.72x 1.3%
(1) Market data as of November 18, 2002, except FBR Pro Forma, which is calculated based on the closing price on November 14, 2002,
the day prior to the date that the transaction was announced.
(2) Earnings forecast for fiscal year end March 2004
(3) Earnings forecast for fiscal year end September 2003
________________________________________________________________________________
Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION.
PAGE 4
[FBR Logo] FBR ASSET MBS PORTFOLIO
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For the Nine Months Ending 30-Sep-2002
_________________________________________________________________________
Sector Current Market Annual % of Average
Face Value Income Portfolio Coupon
($000) ($000)
__________________________________________________________________________
ARM 5,618,770 5,789,145 252,966 99.44% 5.27%
Fixed 31,869 33,360 13,709 0.56% 7.00
TOTAL 5,650,639 5,822,505 266,675 100.00% 5.28
Average Book Modified Effective Relevant
Yrs to Mat Yield Duration Duration Prepayment
Assumptions
________________________________________________________________________________
ARM 2.55 4.74% 2.38 1.37 30.37
Fixed 2.27 5.34 2.00 1.00 56.71
TOTAL 2.55 4.75 2.37 1.37 30.53
[Pie Charts depicting the following information:]
GNMA 5% Fixed 1%
FNMA 36% ARM 99%
FHLMC 59%
ADDITIONAL NINE MONTH INFORMATION AND CORRECTED
BOOK YIELD AND PREPAYMENT ASSUMPTION INFORMATION
________________________________________________________________________________
Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION.
PAGE 5
[FBR Logo] INDEPENDENT BROKER/DEALER COMPARABLES
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Broker/Dealer Return on Equity
------------------------------
Period End Annualized
ROE
1 Legg Mason, Inc* 30-Sep-02 16.8%
2 Bear Stearns 31-Aug-02 15.8%
3 FBR ESTIMATED PRO FORMA 30-SEP-02 15.7%
4 Morgan Stanley 31-Aug-02 14.3%
5 Merrill Lynch 27-Sep-02 12.4%
6 Lehman Brothers 31-Aug-02 12.1%
7 Goldman Sachs 30-Aug-02 11.6%
8 Jefferies Group 27-Sep-02 10.7%
9 Raymond James Financial* 28-Jun-02 9.5%
10 A.G. Edwards Inc.* 31-Aug-02 8.1%
11 Stifel Financial Corp. 30-Sep-02 1.9%
12 SWS Group** 27-Sep-02 -0.4%
* Six months annualized
** Three months annualized
NET INCOME AS % of REVENUE
---------------------------
Period end After Tax
1 FBR ESTIMATED PRO FORMA 30-SEP-02 35.8%
2 Merrill Lynch 27-Sep-02 13.7%
3 Bear Stearns 31-Aug-02 12.8%
4 Legg Mason, Inc.** 30-Sep-02 11.6%
5 Morgan Stanley 31-Aug-02 9.1%
6 Goldman Sachs 30-Aug-02 9.0%
7 Jefferies Group 27-Sep-02 8.3%
8 Lehman Brothers 31-Aug-02 6.2%
9 A.G. Edwards Inc.** 31-Aug-02 5.6%
0 Raymond James Financial 28-Jun-02 5.1%
1 Stifel Financial Corp. 30-Sep-02 0.8%
2 SWS Group* 27-Sep-02 -1.0%
* Three months ended
** Six months ended
INDEPENDENT BROKER/DEALER EQUITY CAPITAL
----------------------------------------
Period End Equity Capital Equity Capital
Less Goodwill
1 Merrill Lynch 27-Sep-02 $22,299 $17,978
2 Morgan Stanley 31-Aug-02 21,416 19,969
3 Goldman Sachs 30-Aug-02 18,844 18,844
4 Lehman Brothers 31-Aug-02 8,909 8,713
5 Bear Stearns 31-Aug-02 5,954 5,954
6 A.G. Edwards Inc. 31-Aug-02 1,627 1,627
7 Legg Mason, Inc. 30-Sep-02 1,168 715
8 NEW FBR GROUP (EST PRO FORMA) 30-SEP-02 1,013 887
9 Raymond James Financial 28-Jun-02 831 769
10 Jefferies Group 27-Sep-02 609 609
11 SWS Group 27-Sep-02 250 250
12 Stifel Financial Corp. 30-Sep-02 79 75
________________________________________________________________________________
Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION.
PAGE 6
[FBR Logo] INDEPENDENT BROKER/DEALER COMPARABLES
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INDEPENDENT BROKER/DEALER Nine Month Total Interest& Investment Principal
REVENUE BREAK DOWN Period End Revenue Dividends Banking Transactions&
------------------ Commissions
1 NEW FBR GROUP 30-SEP-02 $ 310 39% 37% 7%
(EST. PRO FORMA)
2 Lehman Brothers 31-Aug-02 12,648 70% 11% 19%
3 Morgan Stanley 31-Aug-02 24,845 49% 7% 19%
4 Goldman Sachs 30-Aug-02 17,806 48% 12% 19%
5 Merrill Lynch 27-Sep-02 21,775 46% 9% 25%
6 SWS Group * 27-Sep-02 197 38% 11% 38%
7 Bear Stearns 31-Aug-02 5,370 32% 14% 51%
8 Jefferies Group 27-Sep-02 575 12% 19% 66%
9 Raymond James Financial 28-Jun-02 1,133 11% 8% 66%
10 Stifel Financial Corp. 30-Sep-02 147 8% 25% 54%
11 Legg Mason, Inc. ** 30-Sep-02 813 7% 7% 30%
12 A.G.Edwards Inc. ** 31-Aug-02 1,755 5% 11% 55%
* Three months ended
** Six months ended
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INDEPENDENT BROKER/DEALER EXPENSE BREAKDOWN
-------------------------------------------
Nine Month Period Comp/Net
End Revenue
1 NEW FBR GROUP (EST. PRO FORMA) 30-SEP-02 44%
2 Morgan Stanley 31-Aug-02 46%
3 Bear Stearns 31-Aug-02 49%
4 Goldman Sachs 30-Aug-02 50%
5 Lehman Brothers 31-Aug-02 51%
6 Merrill Lynch 27-Sep-02 52%
7 SWS Group * 27-Sep-02 56%
8 Jefferies Group 27-Sep-02 58%
9 Legg Mason, Inc. ** 30-Sep-02 59%
10 A.G. Edwards Inc. ** 31-Aug-02 66%
11 Stifel Financial Corp. 30-Sep-02 68%
12 Raymond James Financial 28-Jun-02 76%
* Three months ended
** Six months ended
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________________________________________________________________________________
Friedman Billings Ramsey
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION
Page 7