William J. Ginivan, Esq.

     Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective and all conditions to the proposed transaction have been satisfied or waived.

CALCULATION OF REGISTRATION FEE

				Proposed Maximum		Proposed Maximum		Amount of
Title of Each Class of		Amount to be		Offering Price		Aggregate		Registration
Securities to be Registered		Registered		Per Unit		Offering Price		Fee(5)
Class A Common Stock, par value $0.01 per share		148,181,183(1)		N/A		$1,332,449,622(3)		$122,585(6)
Class B Common Stock, par value $0.01 per share		26,247,099(2)		N/A		$132,810,321(4)		$12,219

(1)	The maximum number of shares of Class A common stock of Forest Merger Corporation, a Virginia corporation, which will be renamed “Friedman, Billings, Ramsey Group, Inc.” upon the completion of the merger described below and which we refer to as “New FBR,” to be issued in the merger of FBR Asset Investment Corporation, a Virginia corporation, with and into New FBR and the merger of Friedman, Billings, Ramsey Group, Inc., a Virginia corporation, with and into New FBR, based on the exchange ratios of one share of FBR Asset common stock, par value $0.01 per share, to be exchanged for 3.65 shares of New FBR Class A common stock, par value $0.01 per share, and one share of FBR Class A common stock, par value $0.01 per share, to be exchanged for one share of New FBR Class A common stock. Includes the maximum number of shares of New FBR Class A common stock that may be issued upon conversion of outstanding options to acquire shares of FBR Asset common stock and FBR Group Class A common stock and upon conversion of outstanding shares of New FBR Class B common stock.
(2)	The maximum number of shares of Class B common stock of New FBR to be issued in the merger of FBR Group with and into New FBR, based on the exchange ratio of one share of FBR Group Class B common stock, par value $0.01 per share, to be exchanged for one share of New FBR Class B common stock, par value $0.01 per share.
(3)	Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended, and calculated pursuant to Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(1) under the Securities Act, the proposed maximum aggregate offering price of New FBR Class A common stock was calculated in accordance with Rule 457(c) under the Securities Act as the sum of (a)(i) $32.80, the average of the high and low prices per share of FBR Asset common stock as reported on the New York Stock Exchange on November 29, 2002, multiplied by (ii) 23,620,427, the aggregate number of shares of FBR Asset common stock to be converted into New FBR Class A common stock in the merger or issuable pursuant to outstanding options or other equity-based awards prior to the date the merger is expected to be completed and (b)(i) $9.00, the average of the high and low prices per share of FBR Group Class A common stock as reported on the New York Stock Exchange on November 29, 2002, multiplied by (ii) 61,894,124, the aggregate number of shares of FBR Group common stock to be exchanged for New FBR Class A common stock in the merger, issuable pursuant to outstanding options or other equity-based awards prior to the date the merger is expected to be completed and issuable upon conversion of New FBR Class B common stock.
(4)	Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended, and calculated pursuant to Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(2) under the Securities Act, the proposed maximum aggregate offering price of New FBR Class B common stock was calculated as the book value of FBR Group Class B common stock on December 5, 2002.
(5)	Determined in accordance with Section 6(b) of the Securities Act of 1933 at a rate equal to $92.00 per $1,000,000 of the proposed maximum aggregate offering price.
(6)	The total registration fee due in connection with this filing is $134,804. On December 6, 2002 and January 15, 2003, filing fees of $109,800 and $3,320, respectively, were paid in connection with the filing of the preliminary registration materials with the Commission. Accordingly, the fee payable upon filing of this registration statement is $21,684.

     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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To the shareholders of Friedman, Billings, Ramsey Group, Inc. and FBR Asset Investment Corporation:

PROPOSED MERGER OF FBR GROUP AND FBR ASSET

     The boards of directors of Friedman, Billings, Ramsey Group, Inc. and FBR Asset Investment Corporation, upon the recommendation of their respective special committees, consisting entirely of independent, non-management directors, have unanimously approved a combination of FBR Group and FBR Asset. The new company that will result from this merger, Forest Merger Corporation, which we refer to in this joint proxy statement/ prospectus as “New FBR,” will assume the name of “Friedman, Billings, Ramsey Group, Inc.” We are proposing the transaction because we believe the combination of FBR Group and FBR Asset will, among other things, present significant new growth opportunities and business flexibility, and simplify our corporate structure. In addition, the status of New FBR as a real estate investment trust, or “REIT,” will permit the distribution of dividends in a tax-efficient manner. Following completion of the merger, New FBR will operate as a self-managed REIT.

     When the transaction is completed, FBR Group shareholders will receive one share of New FBR Class A common stock in exchange for each share of FBR Group Class A common stock they own, and one share of New FBR Class B common stock in exchange for each share of FBR Group Class B common stock they own. FBR Asset shareholders will receive 3.65 shares of New FBR Class A common stock for each share of FBR Asset common stock they own. In the aggregate, approximately 148,000,000 shares of Class A common stock and 26,250,000 shares of Class B common stock of New FBR will be issued in connection with the transaction. Following completion of the transaction, shares of New FBR Class A common stock will be entitled to one vote per share and shares of New FBR Class B common stock will be entitled to three votes per share. After giving effect to the merger, former FBR Group Class A shareholders will hold approximately 18% of the economic interest and 13% of the total voting power of New FBR, while former FBR Group Class B shareholders will hold approximately 19% of the economic interest and 42% of the total voting power of New FBR. Former FBR Asset shareholders will hold approximately 63% of the economic interest and 45% of the total voting power of New FBR. We expect that New FBR Class A common stock will be listed on the New York Stock Exchange under the symbol “FBR.”

     Before we can complete the transaction, holders of a majority of the voting power of outstanding FBR Group shares and holders of more than two-thirds of the outstanding FBR Asset shares must vote in favor of the merger agreement and the transactions contemplated by the merger agreement. Please note that, together, the two undersigned individuals beneficially own approximately 1,250,000 shares of Class A common stock and 17,636,240 shares of Class B common stock of FBR Group, representing approximately 52% of the total voting power of FBR Group. We have agreed to vote our FBR Group shares in favor of the approval of the merger agreement as long as the merger agreement is in effect, which is sufficient to ensure approval of the merger agreement and the transactions contemplated by the merger agreement by FBR Group shareholders. In addition, FBR Group, which beneficially owns 2,600,000 shares of FBR Asset common stock, representing approximately 10% of the total voting power of FBR Asset, has agreed to vote its FBR Asset shares in favor of the approval of the merger agreement as long as the merger agreement is in effect.

     We enthusiastically support this combination of our companies and join with the rest of the members of the boards of directors of FBR Group and FBR Asset in recommending that you vote FOR approval of the merger agreement and the transactions contemplated by the merger agreement.

     Information about all the proposals is contained in this joint proxy statement/prospectus, which we urge you to read in full. Among the most significant risk factors FBR Group and FBR Asset shareholders should consider before voting are:

•	Changes in interest rates and fluctuation in the stock market could have an adverse effect on New FBR’s operating results and ability to pay expected dividends and may cause declines in the market value of New FBR’s mortgage-backed securities
•	Use of leverage could adversely affect the operations of New FBR, particularly with respect to its mortgage-backed securities business, which could in turn adversely affect its operating results and ability to pay expected dividends
•	If New FBR does not achieve the projected benefits of the merger, the market price of New FBR’s common stock could decline
•	Failure to qualify as a REIT would subject New FBR to U.S. federal income tax, which would materially reduce New FBR’s earnings
•	Risks inherent in the investment banking business, such as the risk of loss resulting from the ownership or underwriting of securities, the risks of trading securities, the risk of loss from lending activities, and the risks of reduced demand for financial advisory and underwriting services, could all have an adverse effect on New FBR’s operating results and ability to pay expected dividends

	See “Risk Factors Related to the Merger and New FBR” beginning on page 17.

    

     

     

     

EMANUEL J. FRIEDMAN		ERIC F. BILLINGS
Chairman and Co-Chief Executive Officer Friedman, Billings, Ramsey Group, Inc.		Chairman and Chief Executive Officer   FBR Asset Investment Corporation Vice Chairman and Co-Chief Executive Officer   Friedman, Billings, Ramsey Group, Inc.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the merger or determined if this joint proxy statement/ prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/ prospectus is dated February 26, 2003

and is first being mailed to shareholders on or about February 27, 2003.

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REFERENCES TO ADDITIONAL INFORMATION

      This joint proxy statement/prospectus incorporates important business and financial information about FBR Group and FBR Asset from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference in this joint proxy statement/prospectus by requesting them in writing or by telephone or over the Internet from the appropriate company at the following addresses:

or

D.F. King & Co., Inc.

      If you would like to request documents, please do so by March 21, 2003, in order to receive them before your special meeting.

      See “Where You Can Find More Information” on page 177.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To be Held March 28, 2003

To the Shareholders of Friedman, Billings, Ramsey Group, Inc.:

      We will hold a special meeting of the shareholders of Friedman, Billings, Ramsey Group, Inc. on March 28, 2003, at 10:00 a.m., local time, at the Park Hyatt Washington, DC, 1201 24th Street NW, Washington, District of Columbia, to consider and vote on the following proposals:

	•	to approve the Agreement and Plan of Merger, dated as of November 14, 2002, by and among Friedman, Billings, Ramsey Group, Inc., FBR Asset Investment Corporation, a Virginia corporation, and Forest Merger Corporation, a Virginia corporation and wholly owned subsidiary of FBR Asset (“New FBR”), and the transactions contemplated thereby; and
	•	to act upon such other matters as may properly come before the FBR Group special meeting or any adjournment or postponement thereof.

      Pursuant to the merger agreement, FBR Asset will merge with and into New FBR, and, immediately following that merger, FBR Group will merge with and into New FBR, with New FBR continuing as the surviving company to each merger. At the time of the merger, each outstanding share of FBR Group Class A common stock will be converted into the right to receive one share of New FBR Class A common stock, each outstanding share of FBR Group Class B common stock will be converted into the right to receive one share of New FBR Class B common stock, and each outstanding share of FBR Asset common stock will be converted into the right to receive 3.65 shares of New FBR Class A common stock.

      We will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement of it by the FBR Group board of directors.

      Only FBR Group shareholders of record at the close of business on February 26, 2003, the record date for the special meeting, may vote at the special meeting and any adjournments or postponements of it. A complete list of FBR Group shareholders of record entitled to vote at the special meeting will be available for the 10 days before the special meeting at our executive offices for inspection by FBR Group shareholders during ordinary business hours for proper purposes.

      Your vote is very important. Please sign, date and return the enclosed proxy card as soon as possible to make sure that your shares are represented at the special meeting. If you are a shareholder of record of FBR Group common stock, you also may cast your vote in person at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct them on how to vote your shares. If you do not vote or do not instruct your broker or bank how to vote, it will have the same effect as voting against the merger.

      For more information about the merger described above and the other transactions contemplated by the merger agreement, please review the accompanying joint proxy statement/prospectus and the merger agreement attached to it as Annex A.

      Based upon the unanimous recommendation of the special committee of the FBR Group board of directors, the FBR Group board of directors unanimously recommends that you vote FOR approval of the merger agreement.

	By Order of the FBR Group Board of Directors,
	CATHY SIGALAS
	Corporate Secretary

February 26, 2003

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To be Held March 28, 2003

To the Shareholders of FBR Asset Investment Corporation:

      We will hold a special meeting of the shareholders of FBR Asset Investment Corporation on March 28, 2003, at 11:30 a.m., local time, at the Park Hyatt Washington, DC, 1201 24th Street NW, Washington, District of Columbia, to consider and vote on the following proposals:

	•	to approve the Agreement and Plan of Merger, dated as of November 14, 2002, by and among FBR Asset Investment Corporation, Friedman, Billings, Ramsey Group, Inc., a Virginia corporation, and Forest Merger Corporation, a Virginia corporation and wholly owned subsidiary of FBR Asset (“New FBR”), and the transactions contemplated thereby; and
	•	to act upon such other matters as may properly come before the FBR Asset special meeting or any adjournment or postponement thereof.

      Pursuant to the merger agreement, FBR Asset will merge with and into New FBR, and, immediately following that merger, FBR Group will merge with and into New FBR, with New FBR continuing as the surviving company to each merger. At the time of the merger, each outstanding share of FBR Asset common stock will be converted into the right to receive 3.65 shares of New FBR Class A common stock, each outstanding share of FBR Group Class A common stock will be converted into the right to receive one share of New FBR Class A common stock, and each outstanding share of FBR Group Class B common stock will be converted into the right to receive one share of New FBR Class B common stock.

      We will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement of it by the FBR Asset board of directors.

      Only FBR Asset shareholders of record at the close of business on February 26, 2003, the record date for the special meeting, may vote at the special meeting and any adjournments or postponements of it. A complete list of FBR Asset shareholders of record entitled to vote at the special meeting will be available for the 10 days before the special meeting at our executive offices for inspection by FBR Asset shareholders during ordinary business hours for proper purposes.

      Your vote is very important. The approval of holders of more than two-thirds of the outstanding shares of FBR Asset common stock as of the record date is required to approve the merger. Please submit your proxy as soon as possible to make sure that your shares are represented at the special meeting. If you are a shareholder of record of FBR Asset common stock, you also may cast your vote in person at the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct them on how to vote your shares. If you do not vote or do not instruct your broker or bank how to vote, it will have the same effect as voting against the merger.

      For more information about the merger described above and the other transactions contemplated by the merger agreement, please review the accompanying joint proxy statement/prospectus and the merger agreement attached to it as Annex A.

      Based upon the unamimous recommendation of the special committee of the FBR Asset board of directors, the FBR Asset board of directors recommends that you vote FOR approval of the merger agreement.

	By Order of the FBR Asset Board of Directors,
	CATHY SIGALAS
	Corporate Secretary

February 26, 2003

TABLE OF CONTENTS

ii

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:	When and where are the special meetings of shareholders?
A:	The special meeting of FBR Group shareholders will take place on March 28, 2003, at the Park Hyatt Washington, DC, 1201 24th Street NW, Washington, District of Columbia. The special meeting of FBR Asset shareholders will take place on March 28, 2003, at the Park Hyatt Washington, DC, 1201 24th Street NW, Washington, District of Columbia.
Q:	What shareholder approvals are required to approve the merger?
A:	For FBR Group, the approval of the holders of a majority of the voting power of the outstanding FBR Group shares entitled to vote as of the record date is required to approve the merger agreement.
	For FBR Asset, the approval of the holders of more than two-thirds of the outstanding FBR Asset shares entitled to vote as of the record date is required to approve the merger agreement.
	As of the FBR Group record date, FBR Group directors and officers held and were entitled to vote shares of FBR Group Class A common stock and FBR Group Class B common stock representing approximately 55% of the outstanding voting power of FBR Group. Each of Emanuel J. Friedman, the Chairman and Co-Chief Executive Officer of FBR Group, and Eric F. Billings, the Vice Chairman and Co-Chief Executive Officer of FBR Group, who, together, beneficially own approximately 52% of the total voting power of the company, has agreed to vote his FBR Group shares in favor of the approval of the merger agreement as long as the merger agreement is in effect, which is sufficient to ensure approval of the merger agreement and the transactions contemplated by the merger agreement by FBR Group shareholders.
	As of the FBR Asset record date, FBR Asset directors and officers held and were entitled to vote 1.3% of FBR Asset common stock outstanding. In addition, FBR Group, which, as of the FBR Asset record date, beneficially owned shares of FBR Asset common stock representing approximately 10% of FBR Asset common stock outstanding, has agreed to vote its shares of FBR Asset common stock in favor of the approval of the merger agreement as long as the merger agreement is in effect.
Q:	Do the boards of directors recommend approval of the merger?
A:	Yes. The boards of directors of both FBR Group and FBR Asset, each on the recommendation of the special committee of independent directors that each company formed to evaluate the advisability and fairness of the merger to shareholders, approved and adopted the merger agreement and the transactions contemplated by the merger agreement and recommend that you vote “FOR” their approval.
Q:	Why were special committees formed?
A.	The boards of directors of each of FBR Group and FBR Asset formed a special committee to protect the interests of shareholders of each company in the evaluation and negotiation of the merger agreement and the transactions contemplated by the merger agreement from potential conflicts of interest resulting from FBR Group’s and its management’s representation on FBR Asset’s board of directors, and the representation of the controlling FBR Group shareholders on FBR Group’s board of directors.
	One of the directors appointed to the FBR Group special committee, Wallace L. Timmeny, is also a partner of a law firm that has provided legal services to FBR Group. The FBR Group board of directors determined that he qualified as an “independent” director as defined by the New York Stock Exchange after considering, among other things, Mr. Timmeny’s personal character, professional credentials and reputation, the fact that his law firm compensation is not dependent on or determined by fees paid to the law firm by FBR Group, which fees in any event represented less than 1% of the law firm’s revenue, and the law firm’s policy that all of Mr. Timmeny’s remuneration from FBR Group be turned over to the law firm.
Q:	Why are FBR Group and FBR Asset going to merge?
A:	We believe that the merger will provide important strategic and financial benefits to FBR Group and FBR Asset and their respective shareholders.

iii

	From FBR Group’s point of view, these benefits include:

•	increased capital base,
•	new business flexibility and earnings stability, and
•	ability to pay significant cash dividends to shareholders in a tax-efficient manner as a result of New FBR’s anticipated REIT status.

	From FBR Asset’s point of view, these benefits include:

•	premium to the market value of shares of FBR Asset common stock,
•	internal management,
•	increased unleveraged capital base,
•	greater protection for dividends and earnings through diversification, and
•	improved prospects for growth.

	To review the reasons for the merger in greater detail, see pages 59 through 64.
Q:	What are the principal risks relating to the merger and New FBR?
A:	There are a number of risks relating to the merger, including the following:

•	Changes in interest rates and fluctuations in the stock market could have an adverse effect on New FBR’s operating results and ability to pay expected dividends and may cause declines in the market value of New FBR’s mortgage-backed securities;
•	Use of leverage could adversely affect the operations of New FBR, particularly with respect to its mortgage-backed securities business, which could in turn adversely affect its operating results and ability to pay expected dividends;
•	If New FBR does not achieve the projected benefits of the merger, the market price of New FBR’s common stock could decline;
•	Failure to qualify as a REIT would subject New FBR to U.S. federal income tax, which would materially reduce New FBR’s earnings; and
•	Risks inherent in the investment banking business, such as the risk of loss resulting from the ownership or underwriting of securities, the risks of trading securities, the risk of loss from lending activities, and the risks of reduced demand for financial advisory and underwriting services could all have an adverse effect on New FBR’s operating results and ability to pay expected dividends.

	See “Risk Factors Related to the Merger and New FBR” beginning on page 17.
Q:	What will happen in the transaction?
A:	In the transaction, FBR Asset will merge with and into New FBR and, immediately following that merger, FBR Group will merge with and into New FBR. As a result of the merger:

•	FBR Group and FBR Asset will cease to exist, and
•	New FBR will survive the merger and own and operate the businesses of FBR Group and FBR Asset.

Q:	What economic interests in and voting power of New FBR will the FBR Group shareholders and FBR Asset shareholders hold after the merger?
A:	The former FBR Group Class A shareholders will hold approximately 18% of the economic interest and 13% of the total voting power of New FBR, former FBR Group Class B shareholders will hold approximately 19% of the economic interest and 42% of the total voting power of New FBR, and former FBR Asset shareholders will hold approximately 63% of the economic interest and 45% of the total voting power of New FBR.
Q:	What will be the name of the combined company after the merger?
A:	The new public company will assume the name of “Friedman, Billings, Ramsey Group, Inc.”
Q:	What will I receive for my shares?
A:	Each FBR Group shareholder will receive one share of a corresponding class of New FBR common stock for each share of FBR Group Class A or FBR Group Class B common stock that the shareholder owns.
	Each FBR Asset shareholder will receive 3.65 shares of New FBR Class A common stock for each share of FBR Asset common stock that the shareholder owns.
	Following completion of the transaction, shares of New FBR Class A common stock will be entitled to one vote per share and shares of New FBR Class B common stock will be entitled to three votes per share.

iv

	Example: If an FBR Group shareholder currently owns 100 shares of FBR Group Class A common stock and 10 shares of FBR Group Class B common stock, as a result of the merger the shareholder will be entitled to receive 100 shares of New FBR Class A common stock and 10 shares of New FBR Class B common stock.
	Example: If an FBR Asset shareholder currently owns 100 shares of FBR Asset common stock, as a result of the merger the shareholder will be entitled to receive 365 shares of New FBR Class A common stock.
Q:	Will I continue to receive dividends on my shares before the merger?
A:	Under the merger agreement, FBR Asset is permitted to pay distributions to shareholders equal to the greater of (1) regular quarterly dividends of $1.25 per share of FBR Asset common stock or (2) distributions as may be required to cause FBR Asset to have distributed 100% of its taxable income for the taxable year ended December 31, 2002, as may be necessary to maintain FBR Asset’s status as a REIT and to prevent FBR Asset from incurring certain U.S. federal income tax liabilities. On December 10, 2002, FBR Asset declared a quarterly dividend of $1.25 per share of FBR Asset common stock payable on February 3, 2003 to FBR Asset shareholders of record as of December 27, 2002. In addition, on December 10, 2002, FBR Asset declared a special dividend of $0.30 per share payable on January 31, 2003 to FBR Asset shareholders of record as of December 27, 2002. FBR Asset does not plan to declare and pay any further regular quarterly dividends if the merger is completed before April 15, 2003. In the event the completion of the merger is delayed significantly beyond April 15, 2003, FBR Asset expects to continue to pay regular quarterly dividends for additional quarterly periods ending before the completion of the merger.
	Under the merger agreement, FBR Group is prohibited from declaring or paying any dividends or distributions prior to the completion of the merger without the prior consent of FBR Asset.
Q:	Will I receive dividends on my New FBR shares?
A:	Yes. In order to qualify as a real estate investment trust, or “REIT,” for U.S. federal income tax purposes, New FBR must distribute to its shareholders annually at least 90% of its taxable income, excluding the retained earnings of its taxable REIT subsidiaries. It is anticipated that, after the completion of the merger, New FBR will maintain the dividend policy of FBR Asset. The payment of dividends by New FBR, however, will be subject to approval and declaration by the New FBR board of directors, and will depend on a variety of factors, including business, financial and regulatory considerations.
Q:	Will New FBR be required to make any distributions to New FBR shareholders as a result of the merger?
A:	Yes. In order to maintain its status as a REIT, New FBR will be required to pay a special dividend on or before December 31, 2003. The amount of the special dividend will equal FBR Group’s undistributed earnings and profits as of the merger date. This amount will not be determinable until after the merger occurs. The special dividend will be paid to all shareholders of New FBR as of the record date designated for the special dividend, which will be after the merger date and before the end of December 2003.
Q:	What are the U.S. federal income tax consequences of the merger?
A:	We have structured the transaction so that it is anticipated that the merger of FBR Asset with and into New FBR, and the merger of FBR Group with and into New FBR, each will be a reorganization for U.S. federal income tax purposes. FBR Group and FBR Asset will not be obligated to complete the merger unless they receive legal opinions to the effect that the merger qualifies as a reorganization for U.S. federal income tax purposes. In addition, in connection with the filing of the registration statement, Wachtell, Lipton, Rosen & Katz and Hogan & Hartson L.L.P. have delivered to FBR Group and FBR Asset, respectively, their opinions, dated the date of this joint proxy statement/prospectus, that (1) the merger of FBR Asset with and into New FBR and the merger of FBR Group with and into New FBR will each qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and (2) the merger of FBR Group with and into New FBR will not be treated as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code. Accordingly, FBR

v

Q:	How will the New FBR shares differ from the shares I own now?
A:	Like FBR Group, but unlike FBR Asset, New FBR will have two classes of common stock, Class A common stock, which will have one vote per share, and Class B common stock, which will have three votes per share. Ownership of FBR Group Class B common stock is currently restricted to certain people associated with the founding of FBR Group; Messrs. Friedman and Billings currently own 36% and 31%, respectively, of the shares of FBR Group Class B common stock outstanding. Like FBR Asset, but unlike FBR Group, New FBR is expected to qualify as a REIT for U.S. federal income tax purposes and its amended and restated articles of incorporation will include a provision preventing any shareholder from owning more than 9.9% of the value of New FBR’s common stock without a waiver from New FBR’s board of directors or shareholders. So long as it qualifies for taxation as a REIT, New FBR generally will not be subject to U.S. federal income tax on the income that it distributes currently to shareholders. The existing subsidiaries of FBR Group and some of the existing subsidiaries of FBR Asset will become taxable REIT subsidiaries of New FBR, and their activities will continue to be fully subject to U.S. federal income tax.
Q:	If I would like to vote on the approval of the merger agreement, what do I need to do now?
A:	After carefully reading and considering the information contained in this joint proxy statement/ prospectus, please complete and sign your proxy card and return it in the enclosed postage-paid envelope as soon as possible so that your shares may be represented at your special meeting.
	If you sign, date and send your proxy and do not indicate how you want to vote, your proxy will be voted for the approval of the merger agreement.
Q:	What do I do if I want to change my vote?
A:	Send a later-dated, signed proxy card to your company’s Corporate Secretary prior to the date of your special meeting or attend your company’s special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to your company’s Corporate Secretary at the address indicated under “Summary — The Companies” on page 1.
Q:	If my broker holds my shares in “street name,” will my broker vote my shares?
A:	If you do not provide your broker with instructions on how to vote your street name shares, your broker will not be permitted to vote them on the proposals. You should, therefore, be sure to provide your broker with instructions on how to vote your shares. Shareholders are urged to utilize telephone or Internet voting if their broker has provided them with the opportunity to do so. See your voting instruction form for instructions.
	If you do not give voting instructions to your broker, your votes will not be counted as voting for the merger unless you appear and vote in person at your special meeting. If your broker holds your shares and you attend the special meeting, please bring a letter from your broker identifying you as the beneficial owner of the shares and acknowledging that you will vote your shares.
Q:	What will happen if I abstain from voting or fail to vote?
A:	An abstention or failure to vote will have the same effect as a vote against the merger.
Q:	Who else must approve the merger?
A:	Completion of the merger is subject to approval of the Board of Governors of the Federal System, the approval of which is currently being sought by FBR Group and FBR Asset.
	We have made the relevant filings or intend to make them as soon as practicable. See “The Merger — Regulatory Matters” on page 94.

vi

Q:	When do you expect to complete the merger?
A:	We expect to complete the merger in the first quarter of 2003.
Q:	What if FBR Group’s average closing stock price for 10 trading days prior to the special meetings is less than $8.75 per share or more than $10.55 per share?
A:	If FBR Group’s average closing stock price during that period is less than $8.75 per share, then FBR Asset may elect to exercise or waive its right under the merger agreement to terminate the merger agreement and cause the merger not to not take place. If you are an FBR Asset shareholder, by voting for approval of the merger agreement, you will be delegating to FBR Asset the authority to waive that termination right and permit the merger to take place even if FBR Group’s average closing stock price during that period is less than $8.75 per share.
	Similarly, if FBR Group’s average closing stock price during that period is greater than $10.55 per share, then FBR Group may elect to exercise or waive its right under the merger agreement to terminate the merger agreement and cause the merger not to not take place. If you are an FBR Group shareholder, by voting for approval of the merger agreement, you will be delegating to FBR Group the authority to waive that termination right and permit the merger to take place even if FBR Group’s average closing stock price during that period is greater than $10.55 per share.
	The election by a party to exercise the walk-away provision and terminate the merger agreement will not result in the payment of any termination fees under the merger agreement.
	If either party waives its right to terminate the merger agreement even though the market price of FBR Group’s Class A common stock has risen above, or fallen below, as the case may be, the collar set forth in the merger agreement, then the shareholders of one of the parties could receive less value in the merger than the parties anticipated and the shareholders of the other party could receive more value in the merger than the parties anticipated.
	Based on the closing price per share of FBR Group Class A common stock on February 25, 2003, the last trading day before the date of this joint proxy statement/prospectus, the price per share of FBR Group Class A common stock is below $8.75 per share. You are encouraged to obtain current market quotations for shares of FBR Group Class A common stock and shares of FBR Asset common stock. For a discussion of the walk-away rights see “Description of the Transaction Agreements — The Merger Agreement — Special Termination Right” on page 106.
Q:	In the event either FBR Group or FBR Asset is entitled to terminate the merger agreement pursuant to the walk-away provision, will the terminating party be entitled to require that the exchange ratio in the merger be changed?
A:	No. In the event either FBR Group or FBR Asset is entitled to terminate the merger agreement pursuant to the walk-away provision, the applicable party will be entitled to exercise that right, in which event the merger agreement will be terminated and the merger will not occur, or to waive that right, in which event the merger will be completed pursuant to the terms of the merger agreement. The parties to the merger agreement and the FBR Asset Special Committee must agree to any amendment of the terms of the merger agreement, and any material amendment would require the approval of each party’s shareholders. Any such approval would require the preparation of a supplement to the joint proxy statement/ prospectus, a new solicitation of proxies for both companies and new special meetings of shareholders of both companies.
Q:	In the event that either FBR Group or FBR Asset is entitled to terminate the merger agreement pursuant to the walk-away provision, would the special committees of the boards of directors of FBR Group and FBR Asset have the right to change the material terms of the merger agreement without shareholder approval?
A:	No. As discussed above, depending on the average closing stock price of shares of FBR Group Class A common stock for the 10 trading days prior to the special meetings, the FBR Asset special committee and the FBR Group special committee may have certain walk-away rights which can be waived. However, a change of any material term of the merger agreement would require the approval of shareholders of

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	FBR Group and FBR Asset. Any such approval would require the preparation of a supplement to the joint proxy statement/ prospectus, a new solicitation of proxies for both companies and new special meetings of shareholders of both companies.
Q:	What will determine whether the walk-away rights are exercised or waived?
A:	In the event either FBR Group or FBR Asset is entitled to terminate the merger agreement under the walk-away provisions, the special committee of the applicable party’s board of directors will make a determination as to whether it is in the best interests of that party’s shareholders to proceed with or terminate the transaction. In making this determination, the special committee of the applicable party will consider a variety of factors, including:

	•	The historical performance and future prospects of each of the companies’ businesses;
	•	Market conditions affecting both companies;
	•	The value of each company’s common stock and its value over the short-term and long-term;
	•	Alternatives to the merger available to each of the companies; and
	•	The possibility of amending the merger agreement to obtain more favorable terms; provided that any amendment of the merger agreement would require the consent of the other party and any material amendment would require the approval of each party’s shareholders, which would require the preparation of a supplement to the joint proxy statement/ prospectus, a new solicitation of proxies for both companies and new special meetings of shareholders of both companies.

The fairness opinions delivered by Goldman Sachs and Lehman Brothers are dated as of the date of the date of the merger agreement, and do not address the fairness of the consideration to be paid in the transaction as of any subsequent date, including any date on which either special committee exercises or waives a walk-away right. The special committees may, if they consider it appropriate, request a new fairness opinion or reaffirmation of the existing fairness opinion from their respective financial advisors in connection with a decision to exercise or waive walk-away rights, but they are not obligated under the terms of the merger agreement to do so.

Q:	Should I send in my share certificates now?
A:	No. Shortly after the merger is completed, we will send you written instructions for exchanging your share certificates.
Q:	Do I have appraisal rights?
A:	No. Neither FBR Group shareholders nor FBR Asset shareholders will have appraisal rights under Virginia law as a result of the merger.
Q:	Who can help answer my questions?
A:	If you have any questions about the merger, need assistance voting your shares or if you need additional copies of this joint proxy statement/ prospectus or the enclosed proxy card, you should contact:

D.F. King & Co., Inc.

FBR Group shareholders:

Friedman, Billings, Ramsey Group, Inc.

FBR Asset shareholders:

FBR Asset Investment Corporation

Q:	Where can I find more information about the companies?
A:	You can find more information about FBR Group and FBR Asset from various sources described under “Where You Can Find More Information” on page 177.

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SUMMARY

      This summary highlights selected information from this joint proxy statement/prospectus and may not contain all the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document, including the annexes, and the other documents to which we have referred you. For information on how to obtain the documents that we have filed with the Securities and Exchange Commission, see “References to Additional Information” on the inside front cover of this joint proxy statement/prospectus and “Where You Can Find More Information” on page 177. For a discussion of the risk factors that you should consider in evaluating the merger, see “Risk Factors Related to the Merger and New FBR” beginning on page 17.

      Throughout this joint proxy statement/prospectus when we use the term “New FBR,” we are referring to Forest Merger Corporation, a newly formed company that is currently a wholly owned subsidiary of FBR Asset, and which, upon completion of the merger, will be the surviving company of the merger described below. Unless the context requires otherwise, when we use the term “merger,” we are referring to first (1) the merger of FBR Asset with and into New FBR, with New FBR being the surviving corporation, followed by (2) the merger of FBR Group with and into New FBR, with New FBR being the surviving corporation.

The Companies

Friedman, Billings, Ramsey Group, Inc.

      FBR Group is a financial holding company for businesses that provide investment banking, institutional brokerage, specialized asset management, and private client services. FBR Group focuses capital and financial expertise primarily in six industry sectors: financial services, real estate, technology, energy, healthcare and diversified industries. For additional information about FBR Group and its business, see “Where You Can Find More Information” on page 177.

FBR Asset Investment Corporation

      FBR Asset invests in investment grade residential mortgage-backed securities guaranteed by Freddie Mac, Fannie Mae and Ginnie Mae and makes opportunistic investments in debt and equity securities of companies engaged in real estate-related and other businesses. FBR Asset is externally managed by Friedman, Billings, Ramsey Investment Management, Inc., or “FBRIM,” a subsidiary of FBR Group. FBR Asset is structured to qualify as a real estate investment trust, or “REIT,” for U.S. federal income tax purposes. For additional information about FBR Asset and its business, see “Where You Can Find More Information” on page 177.

New FBR

      FBR Asset formed New FBR solely for the purpose of effecting the merger. To date, New FBR has not conducted any activities other than those incident to its formation, the execution of the merger agreement and the preparation of this joint proxy statement/prospectus. New FBR is a wholly owned subsidiary of FBR Asset. Upon completion of the merger, FBR Group and FBR Asset each will be merged with and into New FBR, the business of New FBR will be the businesses currently conducted by FBR Group and FBR Asset,

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The Merger

      The merger agreement is attached as Annex A to this joint proxy statement/prospectus. We encourage you to read the merger agreement carefully and in its entirety. It is the principal document governing the merger.

What You Will Receive in the Merger

      FBR Group Shareholders. In the merger, each share of FBR Group Class A common stock will be converted into the right to receive one share of New FBR Class A common stock and each share of FBR Group Class B common stock will be converted into the right to receive one share of New FBR Class B common stock.

      FBR Asset Shareholders. In the merger, each share of FBR Asset common stock will be converted into the right to receive 3.65 shares of New FBR Class A common stock.

      Following completion of the transaction, shares of New FBR Class A common stock will be entitled to one vote per share and shares of New FBR Class B common stock will be entitled to three votes per share.

      See “The Merger” beginning on page 53 and “Risk Factors Related to the Merger and New FBR — Risks Related to the Merger — The value of the shares of New FBR common stock that you receive upon the completion of the merger may be less than the value of your shares of FBR Group common stock or FBR Asset common stock as of the date of the merger agreement or on the date of the special meetings” on page 17.

Organizational Chart of FBR Asset and FBR Group Before and After the Merger

Before:

After:

Recommendations of the Boards of Directors

      FBR Group (page 62). At its meeting on November 14, 2002, the FBR Group board of directors, upon the unanimous recommendation of a special committee, consisting entirely of independent directors, after due consideration, unanimously:

	•	determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of FBR Group and its shareholders,

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	•	approved the merger and approved and adopted the merger agreement and the transactions contemplated by the merger agreement,
	•	directed that the merger agreement and the transactions contemplated by the merger agreement be submitted to a vote at a meeting of FBR Group shareholders, and
	•	recommended that FBR Group shareholders approve the merger agreement and the transactions contemplated by the merger agreement.

      In reaching their conclusions, the FBR Group special committee and FBR Group board of directors considered a number of positive and negative factors, including the following, no one of which was determinative:

           Positive Factors:

	•	the expectation that the transaction would add approximately $700 million of new capital to FBR Group, which is expected to help create new business flexibility and earnings stability,
	•	the expectation that the merger would be accretive to FBR Group earnings and book value,
	•	the expectation that the greater diversity of business as a result of the transaction would help stabilize FBR Group’s revenue stream, and
	•	the ability to distribute dividends to FBR Group shareholders in a tax-efficient manner as permitted by the REIT rules.

           Negative Factors:

	•	uncertainty regarding how the transaction would affect trading in FBR Group common stock both before the completion of the merger, as a result of arbitrage activity, and how New FBR common stock would trade after the completion of the transaction,
	•	the risk that, under the terms and conditions of the merger agreement, FBR Asset can terminate the merger agreement if the average closing stock price of FBR Group Class A common stock for the 10 trading days prior to the shareholders meetings is less than $8.75 per share, and
	•	the termination fee and expenses of up to $11.3 million payable by FBR Group to FBR Asset under certain circumstances.

      See “The Merger — FBR Group Reasons for the Merger” on page 59.

      FBR Asset (page 64). At its meeting on November 14, 2002, the FBR Asset board of directors, upon the unanimous recommendation of a special committee, consisting entirely of independent directors unaffiliated with FBR Group, after due consideration:

	•	determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and fair to and in the best interests of FBR Asset and FBR Asset shareholders unaffiliated with FBR Group,
	•	approved the merger and approved and adopted the merger agreement and the transactions contemplated by the merger agreement,
	•	directed that the merger agreement and the transactions contemplated by the merger agreement be submitted to a vote at a meeting of FBR Asset shareholders, and
	•	recommended that FBR Asset shareholders approve the merger agreement.

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      In reaching their conclusions, the FBR Asset special committee and FBR Asset board of directors considered a number of positive and negative factors, including the following, no one of which was determinative:

	•	that the exchange ratio represented a premium of 22.2% over the closing price of a share of FBR Asset common stock on November 14, 2002 (the last business day before the proposed transaction was announced publicly),
	•	that holders of FBR Asset common stock currently receive a dividend of $1.25 per share per quarter and that, as adjusted to reflect the 3.65 shares of New FBR Class A common stock to be received in the merger for each share of the FBR Asset common stock, the holders initially are expected to receive the same distribution per quarter for each share following completion of the merger,
	•	that a combined FBR Asset and FBR Group could have more potential to grow revenue and income, without additional outside sources of financing, than FBR Asset on a stand-alone basis, and
	•	that by merging with FBR Group, FBR Asset would become internally managed, thereby eliminating any conflicts of interest with FBR Group.

	•	the fact that because the exchange ratio is fixed, a decrease in the trading price per share of FBR Group Class A common stock before the completion of the merger will reduce the value of the per share and aggregate consideration that will be received by the FBR Asset shareholders,
	•	the fact that shares of New FBR Class B common stock will be entitled to three votes per share,
	•	the right under the merger agreement of FBR Group to terminate the merger agreement if FBR Group’s average closing stock price for the 10 trading days prior to the special meetings is greater than $10.55 per share, thereby potentially limiting the potential premium to be received by the FBR Asset shareholders in the merger, and
	•	the termination fee and expenses of up to $16.7 million payable by FBR Asset to FBR Group under certain circumstances, which may discourage some proposals to acquire FBR Asset by a third party because of the increased price that the acquiror would have to pay.

      See “The Merger — FBR Asset Reasons for the Merger” on page 62.

To review the background of and reasons for the merger in greater detail, see pages 53 through 64.

Fairness Opinions of Financial Advisors

      FBR Group (page 67). Goldman, Sachs & Co. delivered its opinion to the special committee of the FBR Group board of directors and the FBR Group board of directors that, as of November 14, 2002, and based upon and subject to the factors and assumptions set forth therein, the exchange ratio of one share of New FBR Class A common stock to be received for each share of FBR Group Class A common stock pursuant to the merger agreement is fair from a financial point of view to the holders of FBR Group Class A common stock.

      The full text of the written opinion of Goldman Sachs, dated November 14, 2002, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex I. FBR Group’s Class A shareholders should read the opinion in its entirety. Goldman Sachs provided its opinion for the information and assistance of the special committee of the FBR Group board of directors and the FBR Group board of directors in connection with their consideration of the transactions contemplated by the merger agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of FBR Group Class A common stock or FBR Group Class B common stock should vote with respect to the transactions. In addition, the Goldman Sachs opinion does not

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      FBR Asset (page 78). In deciding to approve the merger, the FBR Asset board of directors and the special committee of FBR Asset’s board of directors formed to review the transaction considered the opinion of Lehman Brothers Inc., delivered to the FBR Asset special committee on November 14, 2002, and subsequently confirmed in writing, that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth therein, the exchange ratio to be offered in the merger is fair from a financial point of view to the holders of FBR Asset common stock (other than FBR Group and its affiliates).

      The full text of the written opinion of Lehman Brothers, dated November 14, 2002, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex J to this joint proxy statement/ prospectus. We encourage FBR Asset shareholders to read the opinion carefully and in its entirety. Lehman Brothers provided its opinion for the information and assistance of FBR Asset’s special committee of the board of directors and FBR Asset’s board of directors in connection with their consideration of the transactions contemplated by the merger agreement. The Lehman Brothers opinion is not a recommendation as to how any holder of FBR Asset common stock should vote with respect to the transactions. In addition, the Lehman Brothers opinion does not express any opinion as to the prices at which shares of New FBR Class A common stock may trade if and when they are issued.

Interests of Certain Persons in the Merger (page 84)

      FBR Group shareholders and FBR Asset shareholders should note that some directors and officers of FBR Group and FBR Asset have interests in the merger that are different in certain respects from the interests of other FBR Group shareholders and FBR Asset shareholders, respectively. As provided in the merger agreement, upon the completion of the merger, all of the current members of the FBR Group board of directors and the FBR Asset board of directors will become members of the New FBR board of directors. As of February 26, 2003, directors and officers of FBR Group beneficially owned in the aggregate 2,206,739 shares of FBR Group Class A common stock and 18,491,069 shares of FBR Group Class B common stock, representing 41% of the economic interest and 55% of the total voting power of FBR Group. As of February 26, 2003, directors and officers of FBR Asset beneficially owned in the aggregate 351,725 shares of FBR Asset common stock, representing 1.3% of the economic interest and voting power of FBR Asset. Upon completion of the merger, directors and officers of New FBR will beneficially own in the aggregate approximately 3,627,108 shares of New FBR Class A common stock and 18,491,069 shares of New FBR Class B common stock, representing 16% of the economic interest and 31% of the total voting power of New FBR. In addition, Messrs. Friedman and Billings, through their ownership of shares of FBR Group Class A common stock and FBR Group Class B common stock, currently control approximately 52% of the outstanding voting power of FBR Group common stock, and, upon completion of the transaction, will control approximately 29% of the outstanding voting power of New FBR common stock.

      Approval of the merger by FBR Group shareholders and FBR Asset shareholders will constitute a “change in control” under the stock-based compensation plans of FBR Group and FBR Asset, respectively. Under both FBR Group’s and FBR Asset’s stock-based plans, unvested stock options held by employees and directors become fully vested and exercisable, and all restrictions on restricted stock awards lapse, upon a change in control of FBR Group or FBR Asset, respectively. As of February 26, 2003, Robert S. Smith, Kurt Harrington and William J. Ginivan held unvested options to purchase 69,323, 5,000 and 5,000 shares of FBR Group Class A common stock, respectively, all of which will vest upon approval of the merger agreement by FBR Group shareholders. As of February 26, 2003, Messrs. Hendrix, Harrington and Ginivan held 5,000, 2,000 and 2,000 shares of restricted FBR Asset common stock, respectively. No non-employee directors of FBR Group or FBR Asset currently hold unvested stock options or restricted stock.

      Messrs. Smith, Hendrix and Ginivan have purchased 150,000, 100,000 and 50,000 shares of FBR Group Class A common stock under the FBR Stock Purchase and Loan Plan, respectively. Under this plan, certain key FBR Group employees were loaned funds in 2001 by FBR Group in order to facilitate the purchase of

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      See “The Merger — Interests of Certain Persons in the Merger” on page 84.

Conditions to Each Party’s Obligation to Effect the Merger (page 102)

      Each of FBR Group’s and FBR Asset’s obligation to complete the merger is subject to the satisfaction or waiver of a number of conditions, including the following:

	•	the merger agreement is approved by the required vote of FBR Group shareholders and FBR Asset shareholders,
	•	no legal prohibition on completion of the merger is in effect,
	•	the shares of New FBR common stock are approved for listing on the New York Stock Exchange,
	•	the parties’ respective representations and warranties in the merger agreement are true and correct, to the extent set forth in the merger agreement,
	•	the parties comply with their respective covenants and agreements in the merger agreement, to the extent set forth in the merger agreement,
	•	each of FBR Group and FBR Asset receives an opinion of its respective tax counsel to the effect that the merger of FBR Asset with and into New FBR and the merger of FBR Group with and into New FBR will each qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and that the merger of FBR Group into New FBR will not be treated as a reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code,
	•	each of FBR Group and New FBR receives an opinion of tax counsel to the effect that, commencing with its taxable year commencing on the day before the closing date for the initial private placement of its shares of common stock and ended December 31, 1997, FBR Asset was organized and has operated in conformity with the requirements for qualification as a REIT under Sections 856 through 860 of the Internal Revenue Code, and
	•	each of FBR Group, FBR Asset and New FBR receives an opinion of tax counsel to the effect that, commencing with the taxable year ending on December 31 of the calendar year in which the effective time of the merger takes place, New FBR’s organization and intended method of operation will enable it to meet the requirements for qualification and taxation as a REIT under Sections 856 through 860 of the Internal Revenue Code.

Termination of the Merger Agreement (page 105)

      FBR Group and FBR Asset can jointly agree to terminate the merger agreement at any time. Either FBR Group or FBR Asset may also terminate the merger agreement if:

	•	the merger is not completed on or before July 31, 2003 (as long as the failure to complete the merger before that date is not the result of the failure by the terminating company to fulfill any of its obligations under the merger agreement),
	•	government actions do not permit the completion of the merger, so long as the terminating company has used its commercially reasonable efforts to obtain all necessary governmental approvals and lift any injunctions,
	•	either FBR Group shareholders or FBR Asset shareholders fail to approve the merger agreement at a duly held special meeting of those shareholders,

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	•	the other company’s board of directors fails to recommend that its shareholders approve the merger agreement, changes its recommendation, or fails to hold its special meeting of shareholders,
	•	the other company breaches or fails to perform any of its representations, warranties, covenants or other agreements contained in the merger agreement and the breach or failure has not been waived by the non-breaching party or is not cured prior to the earlier of 30 business days after giving written notice of the breach or July 31, 2003, or
	•	prior to the receipt of the approval of its shareholders, it terminates the merger agreement in connection with a superior proposal as provided in the merger agreement.

      In addition, FBR Asset may terminate the merger agreement if FBR Group’s average closing stock price for the 10 trading days prior to the special meetings is less than $8.75 per share, and FBR Group may terminate the merger agreement if FBR Group’s average closing stock price for the 10 trading days prior to the special meetings is greater than $10.55 per share. However, even if these termination rights arise, they may be waived by FBR Asset or FBR Group, as applicable. In approving the proposed merger, you will be delegating to FBR Asset or FBR Group, as the case may be, the authority to waive the termination rights described in this paragraph and permit the merger to be completed in the event such termination rights arise.

Termination Fees (page 107)

      FBR Group will pay a termination fee in the amount of $8.8 million plus actual expenses up to $2.5 million in cash to the extent set forth in the merger agreement if the merger agreement is terminated because FBR Group fails to recommend that its shareholders approve the merger agreement, changes its recommendation, fails to hold its special meeting of shareholders or terminates the merger agreement in connection with a superior proposal.

      FBR Asset will pay a termination fee in the amount of $14.2 million plus actual expenses up to $2.5 million in cash to the extent set forth in the merger agreement if the merger agreement is terminated because FBR Asset fails to recommend that its shareholders approve the merger agreement, changes its recommendation, fails to hold its special meeting of shareholders or terminates the merger agreement in connection with a superior proposal.

      In the event that the merger agreement is terminated for any other reason, no termination fees will be payable. See “Description of the Transaction Agreements — The Merger Agreement — Expenses; Termination Fees” on page 107.

No Solicitation Covenant (page 103)

      The merger agreement contains provisions prohibiting FBR Group and FBR Asset from actively seeking an alternative transaction. The no solicitation covenant generally prohibits FBR Group and FBR Asset, as well as their officers, directors, subsidiaries, employees, agents and representatives, from taking any action to solicit an acquisition proposal as described beginning on page 103. The merger agreement does not, however, prohibit either FBR Group or FBR Asset or its respective board of directors from considering, and potentially recommending, an unsolicited written superior proposal from a third party in the circumstances described under “Description of the Transaction Agreements — The Merger Agreement — No Solicitation by FBR Group or FBR Asset” on page 103.

The Voting Agreements (page 109)

      Emanuel J. Friedman, the Chairman and Co-Chief Executive Officer of FBR Group, and Eric F. Billings, the Vice Chairman and Co-Chief Executive Officer of FBR Group and Chairman and Chief Executive Officer of FBR Asset, beneficially own, in the aggregate, approximately 1,250,000 shares of FBR Group Class A common stock and 17,636,240 shares of FBR Group Class B common stock, representing approximately 52% of the total voting power of FBR Group. Messrs. Friedman and Billings each have agreed to vote their FBR Group shares in favor of the proposal as long as the merger agreement remains in effect.

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The Shareholder Agreements (page 110)

      Following the merger, Messrs. Friedman and Billings will beneficially own, in the aggregate, approximately 1,250,000 shares of New FBR Class A common stock and 17,636,240 shares of New FBR Class B common stock, representing approximately 29% of the total voting power of New FBR. Messrs. Friedman and Billings have entered into shareholder agreements pursuant to which they have agreed to vote their shares of New FBR Class A and New FBR Class B common stock in favor of the election of Peter A. Gallagher, Stephen D. Harlan and Russell C. Lindner, each of whom is currently a director of FBR Asset, to the New FBR board of directors at the 2003 annual meeting of New FBR shareholders. The shareholder agreements also contain provisions regarding the sale or transfer of Messrs. Friedman’s and Billings’s New FBR common stock for a period of one year from the effective time of the merger.

The Extension of the Management Agreement (page 111)

      In connection with the execution of the merger agreement, FBR Asset and FBRIM, a wholly owned subsidiary of FBR Group, entered into an agreement, dated as of November 14, 2002, to extend the management agreement under which FBRIM manages FBR Asset. The management agreement has been extended on its current terms for an additional one-year term beginning on December 17, 2002. The extension agreement provides that, in the event that the merger agreement is terminated for any reason by any party, FBR Asset will have the right to terminate the management agreement without penalty upon 60 days prior written notice. Upon completion of the merger, the management agreement will terminate automatically.

Comparative Market Price Information (page 112)

      Shares of FBR Group Class A common stock are listed on the New York Stock Exchange under the symbol “FBR,” and shares of FBR Asset common stock are listed on the New York Stock Exchange under the symbol “FB.” The following table presents the last reported sale price per share of FBR Group Class A common stock and FBR Asset common stock, as reported on the New York Stock Exchange Composite Transaction reporting system on November 14, 2002, the last full trading day prior to the public announcement of the merger, and on February 25, 2003, the last trading day for which this information could be obtained prior to the date of this joint proxy statement/ prospectus. The following table also presents the FBR Asset common stock equivalent based on the value of FBR Group Class A common stock on November 14, 2002, the last full trading day prior to the public announcement of the merger, and on February 25, 2003, the last full trading day for which this information could be obtained prior to the date of this joint proxy statement/ prospectus multiplied by the 3.65 exchange ratio.

      You are encouraged to obtain current market quotations for shares of FBR Group Class A common stock and shares of FBR Asset common stock. Based on the closing price per share of FBR Group Class A common stock on February 25, 2003, the last trading day before the date of this joint proxy statement/prospectus, the price per share of FBR Group Class A common stock is below $8.75 per share. If the average closing stock price of the FBR Group Class A common stock during for the 10 trading days prior to the special meetings remains less than $8.75 per share, then FBR Asset may elect to exercise its right under the merger agreement to terminate the merger agreement and cause the merger not to take place or may waive that right. The parties to the merger agreement and the FBR Asset special committee must agree to any amendment of the terms of the merger agreement, and any material amendment would require the approval of each party’s shareholders. For a discussion of the walk-away rights see “Description of the Transaction Agreements — The Merger Agreement — Special Termination Right” on page 106.

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SELECTED HISTORICAL FINANCIAL DATA

Selected Historical Financial Data of FBR Group

      The following selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2001 are derived from the consolidated financial statements of FBR Group, which have been audited by Arthur Andersen LLP, FBR Group’s independent auditors during this period. The selected financial data as of and for the nine months ended September 30, 2002 and 2001 are derived from interim financial statements that are not audited, but, in the opinion of management, they include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of FBR Group’s financial position and results of operations as of the dates and for the periods indicated. Results of operations for the periods indicated below are not necessarily indicative of future results. The selected information set forth below should be read in conjunction with FBR Group’s consolidated financial statements and related footnotes, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operation” for the year ended December 31, 2001, incorporated by reference in this joint proxy statement/prospectus from FBR Group’s Annual Report on Form 10-K for the year ended December 31, 2001. See “Where You Can Find More Information” on page 177.

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