Edgar Filing: FRIEDMAN BILLINGS RAMSEY GROUP INC

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

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Friedman, Billings, Ramsey Group, Inc.
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FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 30, 2002

To Our Shareholders:

The Annual Meeting of shareholders of Friedman, Billings, Ramsey Group,
Inc. (the "Company") will be held at The American Electronics Association, 601
Pennsylvania Avenue, N.W., Washington, D.C., on Thursday, May 30, 2002, at 10:00
a.m., to vote on the following:

1. The election of the five directors of the Company;

2. The ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent auditor for 2002; and

3. The transaction of such other business as may properly come before the
Annual Meeting or any adjournment thereof.

The Record Date for the meeting, used to determine which shareholders are
entitled to vote at the meeting and receive these materials, is April 2, 2002.
This Notice, the attached Proxy Statement and the enclosed form of proxy for the
meeting are first being sent to shareholders on or about April 30, 2002. A list
of shareholders will be available at the meeting and for ten days prior to the
meeting at the Company's offices, 1001 Nineteenth Street North, 18th Floor,
Arlington, Virginia 22209.

By Order of the Board of Directors,

/s/

Mary A. Sheehan
Corporate Secretary

April 30, 2002

YOUR VOTE IS IMPORTANT

PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

PROXY STATEMENT

GENERAL

The Board of Directors of Friedman, Billings, Ramsey Group, Inc., a
Virginia corporation (the ''Company'') is soliciting proxies to be used at your
Annual Meeting to vote on the matters described in the Notice of Annual Meeting.
The term ''FBR'', as used herein, refers to the Company and its predecessors,
which were first formed in 1989.

VOTING AND OUTSTANDING SHARES

Holders of record of Class A Common Stock and holders of record of Class B
Common Stock on April 2, 2002, the Record Date, may vote at the Annual Meeting.
On the Record Date, 22,834,601 shares of Class A Common Stock and 26,921,029
shares of Class B Common Stock were outstanding and entitled to vote at the
Annual Meeting. No other voting securities of the Company were outstanding. Each
shareholder is entitled to one vote for each share of Class A Common Stock and
to three votes for each share of Class B Common Stock held on the Record Date.
Holders of Class A Common Stock and Class B Common Stock vote together without
regard to class on the matters that will come before the Annual Meeting.

The expenses of preparing, printing and assembling the materials used in
the solicitation of proxies will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, the Company may utilize the
services of certain of its officers and employees (who will receive no
compensation therefor in addition to their regular salaries) to solicit proxies
personally and by mail, telephone and telegraph from brokerage houses and other
stockholders. The Company will also reimburse banks, brokers and other nominees
in whose names shares are registered for out-of-pocket expenses incurred by them
to furnish this Proxy Statement and related materials concerning the Annual
Meeting to beneficial owners.

If you return your executed proxy in time to permit its review and count,
your shares will be voted as you direct. You can specify whether shares
represented by the proxy are to be voted for the election of all nominees for
director or are to be withheld from some or all of them. You also can specify
approval, disapproval or abstention as to the selection of an independent
auditor.

If your proxy card does not specify how you want to vote your shares, they
will be voted ''for'' the election of all nominees for director, and ''for''
ratification of the selection of PricewaterhouseCoopers LLP as independent
auditor.

You may revoke your proxy at any time before it is exercised by written
notice to the Corporate Secretary, by timely submission of a properly executed
later-dated proxy or by voting in person at the Annual Meeting.

A majority of the votes entitled to be cast on a matter, represented in
person or by proxy, constitutes a quorum for action on that matter. The election
of directors requires a plurality of the votes cast by the shares entitled to
vote on the election of directors at the Annual Meeting. The ratification of the
selection of an independent auditor requires a majority of the votes that could
be cast by the shares that are present in person or represented by proxy at the
Annual Meeting.

The total number of votes that could be cast at the Annual Meeting is the
sum of votes cast and abstentions. Abstentions are counted as ''shares present''
at the Annual Meeting for purposes of determining the presence of a quorum and
have the effect of a vote ''against'' any matter as to which they are specified.
Proxies submitted by brokers that do not indicate a vote for any of the items
(so-called ''broker non-votes'') are not considered ''shares present'' and will
not affect the outcome of the vote.

The Company does not know of any other matter to be presented at the Annual
Meeting. Under the Company's Bylaws, no business other than that stated in the
Notice of Annual Meeting of Shareholders may be transacted at the Annual
Meeting. If any other matter is presented at the Annual Meeting on which a vote
properly may be taken, the shares represented by proxies in the accompanying
form will be voted in accordance with the judgment of the person or persons
voting those shares.

SECURITY OWNERSHIP

SECURITY OWNERSHIP OF MANAGEMENT

The information below shows, as of April 2, 2002, the number of shares of
Class A and Class B Common Stock beneficially owned by each director and
director nominee, by the Chairman and Co-Chief Executive Officer and the next
four highest compensated executive officers during 2001 (''Named Executive
Officers''), and by the directors and executive officers of the Company as a
group.

EACH SHARE OF CLASS B COMMON STOCK HAS THREE VOTES.

The following table shows the shares of Class A Common Stock and Class B
Common Stock, and shares of Class A Common Stock underlying options exercisable
within 60 days, in which the Named Executive Officers and directors have the
sole economic interest and provides the same information for all executive
officers and directors as a group.

Shares
Acquirable Percent
Shares of Percent of Shares of Percent of within 60 of All
Class A Class A Class B Class B Days Common
Name Common Stock Common Stock Common Stock Common Stock (all Class A) Stock
---- ------------ ------------ ------------ ------------ ------------- -----
Emanuel J. Friedman 1,000,000 4.38% 9,517,100 35.35% - 21.14%
Chairman and Co-Chief
Executive Officer

Eric F. Billings 250,000 1.09% 8,119,140 30.16% - 16.82%
Vice Chairman and Co-
Chief Executive Officer

Robert S. Smith 163,653(1) (3) - - 310,157 (3)
Chief Operating Officer

Kurt R. Harrington 17,185 (3) - - 79,541 (3)
Chief Financial Officer

Daniel J. Altobello - - - - 13,000 (3)
Director

W. Russell Ramsey (2) - - 854,829 3.18% - 1.72%
Director

Wallace L. Timmeny 3,000 (3) - - 32,000 (3)
Director

All executive officers and
directors as a group
(8 persons). 1,493,046 6.54% 18,491,069 68.69% 456,030 40.71%

(1) Includes 150,000 shares acquired under the FBR Stock Purchase and Loan
Plan. See page 7.

(2) Effective December 31, 2001, Mr. Ramsey resigned as the Company's President
and Co-Chief Executive Officer. He remains a director of the Company.

(3) Less than one percent.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The table below is based on information available to the Company, including
shareholder filings with the Securities and Exchange Commission (''SEC''), and
shows beneficial ownership of more than 5 percent of the Company's Class A
Common Stock as of December 31, 2001.

Percent
Shared Sole Shared Percent of All
Sole Voting Voting Investment Investment of Common
Title of Class Beneficial Owner Power Power Power Power Class Stock
-------------- ---------------- ----- ----- ----- ----- ----- -----
Class A PNC Investment Corp. (1) 2,427,386 - 2,427,386 - 10.71% 4.89%
Common 300 Delaware Avenue
Stock Suite 304
Wilmington, DE 19801

Class A Mazama Capital 1,821,250 - 2,123,150 - 9.37% 4.28%
Common Management, Inc.
Stock One S.W. Columbia
Suite 1860
Portland, OR 97258

(1) PNC Investment Corp. is a wholly-owned subsidiary of PNC Holding, LLC, a
wholly-owned subsidiary of The PNC Financial Services Group, Inc. (PNC). As
described in the Company's Annual Report on Form 10-K, the Company and PNC
have a strategic business relationship with respect to selected capital
markets and related activities.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file reports of ownership and changes in
ownership of the Company's securities with the SEC. During 2001, all of the
Company's directors and executive officers filed all reports required by Section
16(a) on a timely basis.

ITEM 1

ELECTION OF DIRECTORS

The Board of Directors recommends a vote ''FOR'' the nominees named in this
proposal.

Five directors will be elected at the Annual Meeting. All current board
members have been nominated for reelection. More information on the nominees is
provided below. This information has been given to the Company by the nominees.
Each director elected at the Annual Meeting will serve until the next annual
meeting of the shareholders or until earlier retirement, resignation or removal.

If unforeseen circumstances (for example, death or disability) make it
necessary for the Board of Directors to substitute another person for any of the
nominees, your shares will be voted for that other person.

Effective December 31, 2001, Mark R. Warner resigned as a director of the
Company to assume his duties as the Governor of the Commonwealth of Virginia.
Pursuant to the Company's Bylaws, the resulting vacancy on the Board may be
filled by the Board of Directors. The search for a candidate is underway but was
not completed in time to include a nominee in this Proxy Statement. The Board
intends to fill the vacancy at the earliest practicable date. Proxies cannot be
voted at the Annual Meeting for more than five nominees.

EMANUEL J. FRIEDMAN

Mr. Friedman, age 56, is Chairman and Co-Chief Executive Officer of the
Company. Since co-founding FBR in 1989 he has continuously served as a director.
He served as Chairman and Chief Executive Officer from 1989 to 1999 when he
assumed his current position. He serves as a director of FBR Asset Investment
Corporation. He also manages investment vehicles, including FBR Ashton, Limited
Partnership.

ERIC F. BILLINGS

Mr. Billings, age 49, is Vice Chairman and Co-Chief Executive Officer of
the Company. Since co-founding FBR in 1989, he has continuously served as a
director. He served as Vice Chairman and Chief Operating Officer from 1989 to
1999 when he assumed his current position. He serves as Chairman and Chief
Executive Officer and as a director of FBR Asset Investment Corporation. He also
manages FBR Weston, Limited Partnership.

DANIEL J. ALTOBELLO

Mr. Altobello, age 61, has served as a director of the Company since June
26, 2000. Since October 1, 2000, Mr. Altobello, Chairman of Altobello Family
Partners, has been a private investor and active board member of several
companies. From September 1995 until October 2000, Mr. Altobello was the
Chairman of Onex Food Services, Inc., the parent corporation of Caterair
International, Inc. and LSG/SKY Chefs, and the largest airline catering company
in the world. From 1989 to 1995, Mr. Altobello served as Chairman, President and
Chief Executive Officer of Caterair International Corporation. He is a member of
the Board of Directors of American Management Systems, Inc., LSG Sky Chefs
Holdings, GMBH, Care First, Inc. of which he is non-executive chairman, Care
First of Maryland, Inc., MESA Air Group, World Airways, Inc., First Union Realty
Trust, an advisory director of Thayer Capital Partners, and a trustee of Loyola
Foundation, Inc., Mt. Holyoke College, and Suburban Hospital Foundation, Inc.,
of which he is Chairman.

W. RUSSELL RAMSEY

Mr. Ramsey, age 42, has continuously served as a director since co-founding
FBR in 1989. He is the founder and Managing General Partner of Capital Crossover
Partners LP, an asset management firm. He served as President and Secretary of
FBR from 1989 to 1999 and as President and Co-Chief Executive Officer of FBR
from 1999 to 2001.

WALLACE L. TIMMENY

Mr. Timmeny, age 64, has served as a director of the Company since December
29, 1997. Mr. Timmeny is a partner in the Washington, D.C. office of Dechert, a
law firm, which he joined in 1996. Mr. Timmeny is a past chairman of the
Executive Council of the Securities Law Committee of the Federal Bar
Association. Mr. Timmeny has served as an adjunct professor at American
University School of Law, George Mason University School of Law and Georgetown
University School of Law. From 1965 to 1979, Mr. Timmeny was an attorney with
the U.S. Securities and Exchange Commission ("SEC"), and ultimately the Deputy
Director of the Division of Enforcement of the SEC. Mr. Timmeny and his law firm
have provided and are expected to continue to provide legal services to the
Company.

THE BOARD OF DIRECTORS

MEETINGS

The Board of Directors held six meetings during 2001. Each of the incumbent
directors attended at least 75% of the total number of meetings of the Board and
Board Committees on which they serve.

COMMITTEES

The Board has three standing committees: the Executive Committee, the Audit
Committee and the Compensation Committee. The members of the Executive Committee
are Mr. Friedman and Mr. Billings. The Committee has authority to act on behalf
of the full Board to the full extent permitted by law. The Executive Committee
held no meetings in 2001.

The members of the Audit Committee are Mr. Timmeny, who serves as Chairman
of the Committee, and Mr. Altobello. The Audit Committee assists the Board of
Directors in monitoring the Company's financial reporting process, and the
independence and performance of the Company's independent auditors. The Board
has concluded that each member of the Audit Committee is an ''independent''
director as defined by the New York Stock Exchange. The Audit Committee held
five meetings in 2001. The Board of Directors has adopted a written charter for
the Audit Committee.

The members of the Compensation Committee are Mr. Altobello, who serves as
Chairman of the Committee, and Mr. Timmeny. The Compensation Committee reviews
the Company's compensation plans and makes recommendations concerning those
plans and concerning executive officer compensation. The Compensation Committee
held two meetings in 2001.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIPS WITH DIRECTORS

In the ordinary course of business the Company and its subsidiaries may
have transactions with corporations or other entities in which its non-employee
directors have an interest. None of these transactions exceeds 5% of the gross
revenues of either the Company or the other corporation or entity.

Mr. Timmeny and his law firm have, from time to time, provided legal advice
to the Company and its subsidiaries and are expected to continue to do so.

TRANSACTIONS INVOLVING AFFILIATES

FBR ASSET INVESTMENT CORPORATION

FBR Asset Investment Corporation ("FBR Asset") is a corporation that was
created by the Company in 1997 and has been managed by the Company since its
creation through a management agreement with one of the Company's investment
adviser subsidiaries. At December 31, 2001, the Company held a long-term
investment in FBR Asset representing 20.82% of FBR Asset's equity. The Company's
long term investment was 11.86% as of April 15, 2002, as a result of dilution by
two follow-on offerings by FBR Asset in January and April 2002. In addition, as
of April 15, 2002, the Company's broker-dealer subsidiary held shares
representing 3.58% of FBR Asset's equity in its capacity as a market maker, and
FBR Weston, Limited Partnership, a hedge fund managed by a subsidiary of the
Company and an affiliate of the Company, held shares representing 1.33% of FBR
Asset's equity. At March 31, 2002, FBR Asset had gross assets of $2.7 billion
and shareholder's equity of $343.8 million. The Company's Vice Chairman and
Co-Chief Executive Officer, Mr. Billings, serves as the Chairman and Chief
Executive Officer of FBR Asset and the Company's Chairman and Co-Chief Executive
Officer, Mr. Friedman, is also a director of FBR Asset. FBR Asset also has three
outside, independent members of its Board of Directors who approved the
management agreement with the Company, which agreement includes the base and
incentive fees that are paid to the Company.

The Company's principal broker-dealer subsidiary, Friedman, Billings,
Ramsey & Co., Inc. ("FBRC") has entered into an agreement with FBR Asset,
regarding FBR Asset's extension of credit to or investment in entities that are
or may be FBRC investment banking clients. The agreement provides that in
circumstances where FBRC determines that a commitment to make an extension of
credit to, or an investment in, an entity (each an "investment opportunity") by
FBR Asset would facilitate a possible investment banking transaction, FBRC
presents the investment

opportunity to FBR Asset. The Investment Committee of FBR Asset reviews each
investment opportunity and recommends whether or not to make a loan or an
investment based on its investment criteria. If recommended by the Investment
Committee, the Contracts Committee of FBR Asset's Board of Directors' (the three
members of which are outside, independent directors of FBR Asset) reviews the
investment opportunity and decides on the basis of the Investment Committee's
recommendation whether or not the investment opportunity is appropriate. If FBR
Asset makes a determination to commit to making an extension of credit or an
investment, the commitment is not contingent on FBRC being engaged to provide
investment banking services. If, however, FBRC is engaged to provide investment
banking services, FBR Asset's wholly owned broker-dealer subsidiary will act as
a financial advisor to FBRC in connection with structuring the transaction and
in return for its services it will receive 10% of the net cash investment
banking fees received by FBRC for the engagement. The Company believes that this
agreement with FBR Asset allows FBRC to compete more effectively with larger
institutions for investment banking transactions. The Company also believes the
10% fee to be paid to FBR Asset's broker-dealer subsidiary is reasonable given
the value of the services to be provided and the assistance provided by FBR
Asset's commitment. In 2001, pursuant to this agreement, FBR Asset received $2.9
million in fees from FBRC from three investment banking transactions and one
commitment to a loan that was ultimately unfunded. In FBRC investment banking
transactions in which FBR Asset purchases securities, FBR Asset purchases the
securities net of the underwriting discount or private placement fee normally
paid to FBRC. In 2001, FBR Asset purchased securities in three transactions for
an aggregate price of $23.1 million.

The management agreement with FBR Asset currently provides that the Company
will receive base management fees of 0.25% per annum (0.20% per annum beginning
May 1, 2002) based on the value of mortgage related assets and 0.75% per annum
based on the value of all other invested assets. For the years ended December
31, 2001 and 2000, the Company received base management fees of $1.8 million and
$1.1 million respectively. In addition, the Company is entitled to receive
incentive fees based on performance above a benchmark. For the year ended
December 31, 2001, the Company received incentive fees of $1.7 million. The
Company has not received incentive fees from FBR Asset in any other year.

The Company accounts for its equity interest in FBR Asset under the equity
method and for the years ended December 31, 2001 and 2000 recorded $4.3 million
and $7.1 million of net investment income for its proportionate share of FBR
Asset's net income for those years.

INVESTMENT IN CAPITAL CROSSOVER PARTNERS

In 2001, the Company announced that then President and Co-Chief Executive
Officer, W. Russell Ramsey, would launch his own investment fund, Capital
Crossover Partners ("CCP"). On December 31, 2001, Mr. Ramsey resigned as the
Company's President and Co-Chief Executive Officer; he remains a director of the
Company. The Company is an investor in CCP and has a capital commitment to the
fund of $15 million, of which $6 million was paid in to the fund during 2001 and
an additional $4.5 million was paid in to the fund in 2002, for a total
investment of $10.5 million through April 15, 2002. The Company made its
investment in CCP based on the Company's assessment of the potential return on
the investment and because the Company believed it presented the Company with
the potential for certain strategic relationships that could be beneficial to
the Company's business. In 2001, in connection with services provided to CCP,
the Company earned fees and is entitled to receive three percentage points of
carried interest in CCP. The fees the Company has received and the carried
interest it is entitled to receive were determined based on negotiations with
Mr. Ramsey. The Company does not control CCP or have influence over the
management or investment strategy of CCP. As of December 31, 2001, the Company
earned fees of $1.1 million for services provided to CCP. The Company did not
record any income in connection with its carried interest in CCP during 2001.

FBR STOCK PURCHASE AND LOAN PLAN

During 2001, the Company adopted the FBR Stock Purchase and Loan Plan.
Under the plan, certain key employees of FBR, including the executive officers
but excluding the Co-Chief Executive Officers, were eligible to purchase shares
of the Company's common stock that the Company had purchased from Mr. Ramsey.
The purchase from Mr. Ramsey and the sale to employees were effected at a price
of $5.50 per share.

Under the plan, participants, including the two executive officers who
participated, paid 20% of the purchase price in cash and borrowed the remaining
80% of the purchase price from the Company under a five year limited recourse
promissory note with interest accruing at 6.5% and accreting to principal. Each
participant's note is collatoralized solely by 100% of the stock purchased by
that participant under the plan. Shares acquired under the plan are restricted
for a period of two years from the date of acquisition. After two years, an
employee may sell the shares only if the employee pays off the promissory note
or substitutes collateral satisfactory to the Company.

For accounting purposes, the portion of the employee share purchase
financed by the Company (80%) is considered a stock option, and deducted from
shareholders' equity. These shares are deducted from shares outstanding, similar
to treasury stock, in computing book value and earnings per share. As a result,
both the $22.7 million financed (including accrued interest) by the Company and
the 4,000,000 common shares related to the financing are reflected as a
receivable in shareholders' equity. As the employees repay the loans,
shareholders' equity and shares outstanding will increase. In addition, the
interest earned on the employee loans is added to paid-in-capital and excluded
from net income.

Under the terms of the plan, the two executive officers participating in
the plan received options equal to the number of shares they purchased under the
plan; the options were then immediately exercised at no economic advantage to
the executive officers. These options were exercisable for one day and had a
strike price of $5.50. The option price was set at $5.50 rather than the market
price because that was the price at which Mr. Ramsey agreed to sell his shares
to the Company on the condition that the shares be offered to employees at that
price. Under the plan, two executive officers, Mr. Smith and Mr. Ginivan,
received loans of $660,000 and $220,000, respectively, for the purchase of
150,000 shares and 50,000 shares, respectively.

DIRECTOR AND MANAGEMENT COMPENSATION

DIRECTOR COMPENSATION

Each non-employee director receives an annual retainer of $25,000 for
service on the Company's Board, a fee of $1,500 for each in-person meeting of
the Company's Board or a Committee of the Board, and a fee of $500 for each
telephonic meeting of the Company's Board or a Committee of the Board. The
Chairman of the Audit Committee receives an additional annual retainer fee of
$5,000. Non-employee directors also receive an annual grant of options to
purchase 3,000 shares of Class A Common Stock pursuant to the terms of the
Non-Employee Director Stock Compensation Plan. No separate compensation is paid
to directors who are officers of the Company for their services as directors.

REPORT ON EXECUTIVE COMPENSATION

The following Report on Executive Compensation for fiscal year 2001 is
submitted by the Compensation Committee of the Board of Directors, which is
composed of the Company's independent non-employee directors, Mr. Altobello,
Chairman, and Mr. Timmeny:

COMPENSATION PAID TO EXECUTIVE OFFICERS

In 2001, each of FBR's executive officers received a base salary, and, with
the exception of Mr. Ramsey, was eligible to receive (1) an annual cash bonus,
and stock and option awards, under the FBR Stock and Annual Incentive Plan (the
"Stock and Annual Incentive Plan'') and (2) a cash bonus under the Key Employee
Incentive Plan. The executive officers, excluding the Co-Chief Executive
Officers, were eligible to purchase stock under the FBR Stock Purchase and Loan
Plan. Mr. Ramsey announced in early 2001 his planned resignation as President
and Co-Chief Executive Officer of FBR at year-end 2001. During the year, he
focused primarily on a transition of his duties and was not eligible for a cash
bonus or stock options in 2001.

BASE SALARIES. Base salaries were set at a level such that a significant
amount of the total possible overall compensation of each executive officer was
determined by FBR's overall performance and the individual's performance. The
amount of each base salary was based on competitive factors within FBR's
industry and on the past contributions and performance of each executive
officer.

ANNUAL BONUSES. Early in 2001, the Compensation Committee established
annual bonus criteria under the Key Employee Incentive Plan for Messrs. Friedman
and Billings, the Co-Chief Executive Officers, based on three weighted factors:
(1) revenue - 40%, (2) return on equity - 30% and (3) reported net income - 30%.
For each factor, threshold, target and maximum performance criteria and
corresponding bonus amounts were established.

Annual bonuses paid under the Key Employee Incentive Plan to those other
executive officers whose duties primarily involve non-revenue producing
activities, such as operations, finance, accounting and legal, were based on the
individual contributions and performance of each such executive officer within
his respective area of responsibility and on the overall performance of FBR.

LONG TERM INCENTIVE COMPENSATION. In 2001, the Compensation Committee
adopted a long-term incentive compensation plan for Mr. Friedman and Mr.
Billings that was based 50% on cumulative net income and 50% on cumulative total
return to shareholders, each measured over a three year time period. For each
factor a threshold, target and maximum payout was established. Under the plan,
payouts would begin in 2004 based on the prior three-year performance. Mr.
Friedman and Mr. Billings have agreed to give up their right to long-term
compensation under this plan in connection with a restructuring of the
compensation plan for the Co-Chief Executive Officers for 2002. As a result no
payments will be made under this plan.

STOCK OPTIONS. Officers and employees of the Company who are responsible
for or contribute to the growth and profitability of the business of the Company
are eligible to be granted stock options under the Stock and Annual Incentive
Plan. Stock options were not granted to the Co-Chief Executive Officers due to
the fact that, as founders of the Company, they still own significant amounts of
the Company's common stock. In 2001, the only options issued under the plan to
other executive officers of FBR were options with an exercise period of one day
that were granted pursuant to participation in the FBR Stock Purchase and Loan
Plan.

FBR STOCK PURCHASE AND LOAN PLAN. In June 2001, the Company adopted the FBR
Stock Purchase and Loan Plan. Under the plan, certain key employees of FBR,
including the executive officers but excluding the Co-Chief Executive Officers,
were eligible to purchase shares of the Company's common stock at $5.50 per
share. The Company had purchased the shares from Mr. Ramsey at $5.50 per share.
Under the plan, participants paid 20% of the purchase price in cash and borrowed
the remaining 80% of the purchase price from the Company under a five year
limited recourse promissory note with interest accruing at 6.5% and accreting to
principal. Under the terms of the plan, the executive officers participating in
the plan received options equal to the number of shares they purchased under the
plan; the options were then immediately exercised at no economic advantage to
the executive officers in order to allow them to participate in the plan. These
options were exercisable for one day and had a strike price of $5.50.

RETIREMENT BENEFITS. As part of its policy of maintaining a compensation
system that is incentive driven, the Company does not provide retirement
benefits, other than a defined contribution savings plan available to all
Company employees pursuant to Section 401(k) of the Internal Revenue Code.
During 2001, FBR did not match any employee contributions made under that plan.

2001 COMPENSATION PAID TO THE CO-CHIEF EXECUTIVE OFFICERS

As noted above, Mr. Ramsey announced in early 2001 his decision to resign
his position as President and Co-Chief Executive Officer at the end of 2001.
During 2001, Mr. Ramsey primarily focused on a transition of his duties and
therefore, his compensation for 2001 consisted solely of his base salary.

For the remaining two Co-Chief Executive Officers, Mr. Friedman and Mr.
Billings, the Company believes that a significant part of its success is based
on their team management approach, their leadership and their ability to work
closely together to implement the Company's strategic business plans. In
addition, each of them has ongoing direct involvement in the revenue producing
units of the Company. Accordingly, the compensation plans for each of these
Co-Chief Executive Officers were the same.

In setting the salaries of the Co-Chief Executive Officers, the
Compensation Committee considered the above factors, as well as their potential
overall compensation. Because of the Company's policy of placing a significant
portion of their total possible compensation at risk based on performance
criteria, the base salaries of the Co-Chief Executive Officers remained at
$600,000. Their salaries have not increased during the five-year period from
1997 to 2001. For 2002, Mr. Friedman and Mr. Billings have agreed to reduce
their respective base salaries by 20% to $480,000, as part of the Company's
previously announced plan to reduce fixed expenses by 20%.

Mr. Friedman and Mr. Billings each received an annual bonus of $321,470 for
2001 based on performance under the 2001 bonus criteria described under Annual
Bonuses. The maximum bonus each of them was eligible to receive under the 2001
criteria was $2,400,000. The bonus was for performance under the net revenue
factor. The maximum bonus payable for the net revenue factor was $960,000. They
did not receive any bonus in connection with the income and return on equity
factors because the threshold performance criteria for those factors were not
achieved. The Co-Chief Executive Officers did not receive any other
compensation.

Tax Considerations

Section 162(m) of the Internal Revenue Code (the "Code''), generally denies
a tax deduction to any publicly-held company for compensation paid to one of the
company's five most highly compensated executive officers which exceeds $1
million. Section 162(m) of the Code provides exemptions to this limitation on
deductions for compensation which meets certain "performance based'' criteria.
To date, all compensation paid to the Company's five highest paid executive
officers has been paid pursuant to plans that are exempt from the limitations of
Section 162(m). The Company believes that the primary purpose of executive
compensation should be to motivate executives to implement the Company's
strategic plans in order to increase shareholder value. To the extent that
achieving that purpose is consistent with making executive compensation tax
deductible pursuant to Section 162 (m) of the Code, it is the Company's
intention to grant executive compensation that qualifies for tax deductions.

Respectfully submitted,

/s/

Daniel J. Altobello , Chairman
Wallace L. Timmeny

Summary Compensation Table

The following table shows the compensation for FBR's Chairman and Co-Chief
Executive Officer and the next four highest compensated executive officers in
the fiscal year ended December 31, 2001.

Annual Compensation Long-Term Compensation
------------------- ----------------------
Other Annual Securities Underlying Options
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Granted (#)
--------------------------- ---- ---------- --------- ----------------- -----------

Emanuel J. Friedman 2001 600,000 321,470 -- --
Chairman, Co-Chief 2000 600,000 1,853,741 -- --
Executive Officer 1999 600,000 2,000,000 -- --
and Director

Eric F. Billings 2001 600,000 321,470 -- --
Vice Chairman, Co-Chief 2000 600,000 1,853,741 -- --
Executive Officer 1999 600,000 2,000,000 -- --
and Director

W. Russell Ramsey 2001 600,000 -- -- --
President, 2000 600,000 1,853,741 -- --
Co-Chief Executive 1999 600,000 2,000,000 -- --
Officer and Director (1)

Robert S. Smith 2001 250,000 234,500 -- 150,000(2)
Chief Operating Officer 2000 250,000 859,983 -- 207,970(3)
1999 250,000 277,000 -- 200,000

Kurt R. Harrington 2001 200,000 223,243 -- --
Chief Financial Officer 2000 175,000 180,000 -- 15,000(3)
1999 125,000 70,000 -- 55,000(4)

(1) Effective December 31, 2001, Mr. Ramsey resigned as the Company's President
and Co-Chief Executive Officer. He remains a director of the Company.

(2) Options granted pursuant to participation in the FBR Stock Purchase and
Loan Plan that were issued on June 26, 2001 and expired on the same day.
See page 7.

(3) Options awarded in January 2001 for performance during fiscal year 2000.

(4) During 1999, Mr. Harrington elected to receive 25,000 options in lieu of a
portion of his cash bonus.

Option Grants in Last Fiscal Year

Percent
of Total
Options Market
Number of Granted Exercise Price Potential Realizable
Securities to or Base on Value at Assumed
Underlying Employees Price Date Annual Rates of Stock
Options in Fiscal Per of Expiration Price Appreciation for
Name Granted Year Share Grant Date Option Term
---- ------- ---- ----- ----- ---- -----------
5% 10% 0%
-- --- --

Emanuel J. Friedman -- -- -- -- -- -- -- --
Eric F. Billings -- -- -- -- -- -- -- --
W. Russell Ramsey -- -- -- -- -- -- -- --
Robert S. Smith 150,000(1) 4.10% $5.50(1) $6.10 6/26/01 (1) (1) (1)
Kurt R. Harrington -- -- -- -- -- -- -- --

(1) Options granted pursuant to participation in the FBR Stock Purchase and
Loan Plan that were issued on June 26, 2001 and expired on the same day.
The option price was set at $5.50 rather than the market price because that
was the price at which Mr. Ramsey agreed to sell his shares to the Company
on the condition that the shares be offered to employees at that price.
Shares acquired under the plan are restricted for a period of two years
from the date of acquisition. Mr. Smith's purchase of 150,000 shares under
the FBR Stock Purchase and Loan Plan represented three percent of the
5,000,000 shares purchased by employees under the plan. See page 7.

Aggregated Option Exercises and Fiscal Year-End Option Values

Number of Securities
Shares Underlying Value of Unexercised
Acquired on Unexercised Options at In-the-Money Options at
Name Exercise (#) Value Realized ($) December 31, 2001 December 31, 2001
---- -------------- ------------------ Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Emanuel J. Friedman -- -- -- -- -- --
Eric F. Billings -- -- -- -- -- --
W. Russell Ramsey -- -- -- -- -- --
Robert S. Smith 150,000(1) -- 240,833 337,137 -- --
Kurt R. Harrington -- -- 74,541 46,209 -- --

Audit Committee Report

The following report is submitted by the Audit Committee of the Board of
Directors, which is composed of the Company's independent, non-employee
directors, Mr. Timmeny, Chairman, and Mr. Altobello:

The Audit Committee assists the Board of Directors in monitoring the
Company's financial reporting process. Management has primary responsibility for
the financial statements and the reporting process, including the system of
internal controls. The independent auditors are responsible for expressing an
opinion on the conformity of those audited financial statements with accounting
principles generally accepted in the United States.

In fulfilling its responsibilities, the Committee has reviewed and
discussed the audited financial statements contained in the 2001 Annual Report
on SEC Form 10-K with the Company's management and the independent auditors. The
Committee discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended. In addition, the Committee has discussed with the
independent auditors, the auditors' independence from the Company and its
management including the matters in the written disclosures required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, and has considered the compatibility of non-audit services with the
auditors' independence.

In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board, and the Board has approved, the inclusion of the
audited financial statements in the Company's Annual Report on SEC Form 10-K for
the year ended December 31, 2001, for filing with the Securities and Exchange
Commission.

Following the recommendation of the Audit Committee, on March 22, 2002, the
Board of Directors determined not to renew the engagement of Arthur Andersen LLP
as the Company's independent auditor and selected PricewaterhouseCoopers LLP as
independent auditor for fiscal year 2002.

Respectfully submitted,

Wallace L. Timmeny, Chairman
Daniel J. Altobello

STOCK PERFORMANCE GRAPH

The following graph compares the change in the cumulative total shareholder
return for the Company's Class A Common Stock with the comparable cumulative
return of two indexes: the Standard & Poors (''S&P'') 500 Stock Index and the
FSA Mid-Cap Index published by Financial Service Analytics, Inc.

The Company's Class A Common Stock first began trading publicly on December
23, 1997, on the New York Stock Exchange. The graph, therefore, assumes $100
invested on December 23, 1997, in the Company's Class A Common Stock and $100
invested at the same time in each of the above mentioned indexes. The comparison
assumes that all dividends are reinvested.

The following table was depicted as a graph in the printed material.

FRIEDMAN BILLINGS RAMSEY GROUP
FBR FBG FBR FSA S&P 500
Prices Dividends Indexed Mid-Cap Reinv
------ --------- ------- ------- -----
12/23/97 20.50 100 100 100
Dec-97 17.94 88 104 104
Jan-98 14.94 73 91 105
Feb-98 14.94 73 102 112
Mar-98 16.75 82 109 118
Apr-98 18.81 92 116 119
May-98 15.69 77 109 117
Jun-98 14.44 70 105 122
Jul-98 13.25 65 101 121
Aug-98 6.38 31 69 103
Sep-98 5.31 26 76 110
Oct-98 5.13 25 79 119
Nov-98 6.00 29 88 129
Dec-98 6.50 32 85 133
Jan-99 6.38 31 83 139
Feb-99 5.81 28 80 134
Mar-99 6.69 33 88 140
Apr-99 14.88 73 111 145
May-99 10.44 51 109 142
Jun-99 11.88 58 120 150
Jul-99 8.75 43 104 145
Aug-99 6.88 34 98 144
Sep-99 6.94 34 95 140
Oct-99 5.19 25 91 149
Nov-99 5.94 29 88 152
Dec-99 7.88 38 91 161
Jan-00 8.81 43 95 153
Feb-00 16.00 78 113 150
Mar-00 10.88 53 114 165
Apr-00 7.81 38 105 160
May-00 6.38 31 103 157
Jun-00 8.13 40 117 160
Jul-00 7.25 35 123 158
Aug-00 7.44 36 134 168
Sep-00 9.31 45 144 159
Oct-00 7.56 37 134 157
Nov-00 6.13 30 116 146
Dec-00 6.56 32 141 146
Jan-01 7.77 38 151 152
Feb-01 6.26 31 138 138
Mar-01 5.48 27 118 129
Apr-01 5.75 28 132 139
May-01 6.10 30 129 140
Jun-01 7.00 34 136 137
Jul-01 6.90 34 137 135
Aug-01 6.60 32 131 127
Sep-01 5.10 25 120 117
Oct-01 4.95 24 113 119
Nov-01 4.50 22 124 128
Dec-01 5.19 25 138 129

ITEM 2

RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITOR

The Board of Directors recommends a vote "FOR" ratification of the appointment
of PricewaterhouseCoopers LLP.

The Board of Directors has selected the firm of PricewaterhouseCoopers LLP
("PWC") to audit the Company's consolidated financial statements for 2002, and
recommends to the shareholders ratification of the appointment of PWC as
independent auditor for 2002. If the selection of PWC is not ratified by the
shareholders, the Board of Directors will request the Audit Committee to
consider that fact in its review and future recommendation of the independent
auditor.

The selection of PWC as the Company's new independent auditor on March 22,
2002, followed the decision of the Company not to renew the engagement of its
former independent auditor, Arthur Andersen LLP ("Andersen"). The decision not
to renew the engagement of Andersen and to retain PWC was approved by the
Company's Board of Directors upon the recommendation of its Audit Committee.

During the Company's two most recent fiscal years ended December 31, 2001
and 2000, and the subsequent interim period through March 22, 2002, there were
no disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to Andersen's satisfaction would
have caused them to make reference to the subject matter of the disagreement in
connection with their reports.

None of the reportable events described under Item 304(a)(1)(v) of SEC
Regulation S-K occurred within the Company's two most recent fiscal years and
the subsequent interim period through March 22, 2002.

The audit reports of Andersen on the consolidated financial statements of
the Company and subsidiaries as of and for the fiscal years ended December 31,
2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles.

During the Company's two most recent fiscal years ended December 31, 2001
and 2000, and the subsequent interim period through March 22, 2002, the Company
did not consult with PWC regarding any of the matters or events set forth in
Item 304(a)(2)(i) and (ii) of SEC Regulation S-K.

Representatives of both PWC and Andersen will be present at the Annual
Meeting, will have the opportunity to make statements if they desire to do so
and will be available to respond to appropriate questions.

Audit Fees. The aggregate fees billed for professional services rendered to
the Company by Andersen during 2001 in connection with the audit of the
Company's financial statements for 2001 and the reviews of the financial
statements included in the Company's Forms 10-Q for 2000 were $567,220. This
amount includes fees related to the Company and its consolidated and
non-consolidated subsidiaries and investments.

Audit Related Fees. The aggregate fees for audit related services, which
related to preparation and delivery of comfort letters and consents, rendered by
Andersen during 2001 were $55,500. This amount includes fees related to the
Company and its consolidated and non-consolidated subsidiaries and investments.

Financial Information Systems Design and Implementation Fees. During 2001,
no professional services were rendered to the Company by Andersen relating to
financial information systems design and implementation.

All Other Fees. The aggregate fees billed for all other professional
services rendered to the Company by Andersen during 2001, which services
primarily related to tax compliance, tax consulting and due diligence related to
investment banking deal work were $510,000. This amount includes fees related to
the Company and its consolidated and non-consolidated subsidiaries and
investments.

OTHER MATTERS TO COME BEFORE THE MEETING

The Board of Directors does not know of any matters that will be brought
before the meeting other than those specifically set forth in the notice
thereof. If any other matter properly comes before the meeting, it is intended
that the persons named in and acting under the enclosed form of proxy or their
substitutes will vote thereon in accordance with their best judgement.

ANNUAL REPORT TO SHAREHOLDERS

The Company's 2001 Annual Report to Shareholders is enclosed with this
Proxy Statement.

SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING

A shareholder who wishes to introduce a proposal for consideration at the
Company's 2003 Annual Meeting may seek to have that proposal included in the
Company's proxy statement pursuant to U.S. Securities and Exchange Commission
(''SEC'') Rule 14a-8. To qualify for this, the proposal must be received at the
Company's principal executive offices not later than December 31, 2002 and must
satisfy the other requirements of Rule 14a-8. The submission of a shareholder
proposal does not guarantee that it will be included.

A shareholder may otherwise propose business for consideration or nominate
persons for election to the Board of Directors in compliance with applicable
state law and the Company's Bylaws. The Company's Bylaws provide that any such
proposals or nominations for the Company's 2003 Annual Meeting must be received
by the Company no earlier than January 30, 2003, and no later than March 3,
2003. Any such notice must satisfy the other requirements with respect to such
proposals and nominations contained in the Company's Bylaws. If a shareholder
fails to meet these deadlines or fails to comply with the requirements of SEC
Rule 14a-4, the Company may exercise discretionary voting authority under
proxies it solicits to vote on any such proposal.