SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant ( ) Filed by a Party other than the Registrant (X )
Check the appropriate box:
<TABLE>
<S> <C>
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the Commission Only
( ) Definitive Proxy Statement (as permitted by Rule 14c-6(e)(2)
( ) Definitive Additional Materials ( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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FBR Family of Funds
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(Name of Registrant as Specified in Its Charter)
Keith T. Robinson, Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
(X) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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( ) Fee paid with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
FBR Family of Funds
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
1-888-888-0025
http://www.fbrfunds.com
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FBR Small Cap Value Fund
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held Thursday, June 1, 2000
To the shareholders of the FBR Small Cap Value Fund:
Notice is hereby given that a special meeting of shareholders of the
FBR Small Cap Value Fund (the "Fund") of the FBR Family of Funds (the "Trust")
will be held at 2:00 p.m., New York time, on Thursday, June 1, 2000 at the
office of Friedman, Billings, Ramsey Group, Inc., Potomac Tower, 1001 Nineteenth
Street North, 6th Floor, Roosevelt Conference Room, Arlington, Virginia 22209,
or as adjourned from time to time (the "Meeting"), for the purposes listed
below. The Meeting will be held:
I. To approve a new Sub-Advisory Agreement; and
II. To transact such other business as may properly come before the
Meeting.
After careful consideration, the Trustees of the Trust unanimously
approved Proposal I above and recommend that shareholders vote "FOR" that
proposal.
The matters referred to above are discussed in detail in the proxy
statement attached to this notice. The Board of Trustees has fixed the close of
business on April 14, 2000 as the record date for determining shareholders
entitled to notice of and to vote at the Meeting. Each share of the Fund is
entitled to one vote with respect to the proposal, with fractional votes for
fractional shares.
Regardless of whether you plan to attend the Meeting, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED,
SO THAT YOU WILL BE REPRESENTED AT THE MEETING. If you have returned a proxy
card and are present at the Meeting, you may change the vote specified in the
proxy at that time. However, attendance in person at the Meeting, by itself,
will not revoke a previously tendered proxy.
By Order of the Board of Trustees,
W. Bart Sanders, Secretary
Arlington, Virginia
April 24, 2000
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. IN
ORDER TO AVOID THE UNNECESSARY EXPENSE OF FURTHER SOLICITATION, WE URGE YOU TO
INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
<PAGE>
FBR Family of Funds
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
1-888-888-0025
http://www.fbrfunds.com
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FBR Small Cap Value Fund
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PROXY STATEMENT
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Special Meeting of Shareholders
To be held Thursday, June 1, 2000
This proxy statement and enclosed proxy are furnished in connection
with the solicitation of proxies by the Board of Trustees (the "Board" or
"Trustees") of the FBR Family of Funds (the "Trust") for use at a special
meeting of shareholders of the FBR Small Cap Value Fund (the "Fund") to be held
at 2:00 p.m., New York time, on Thursday, June 1, 2000 at the offices of
Friedman, Billings, Ramsey Group, Inc., Potomac Tower, 1001 Nineteenth Street
North, 6th Floor, Roosevelt Conference Room, Arlington, Virginia 22209, or as
adjourned from time to time (the "Meeting"). The Board is soliciting proxies
from shareholders of the Fund with respect to the proposal set forth in the
accompanying notice. It is anticipated that the first mailing of proxies and
proxy statements to shareholders will be on or about April 24, 2000.
Shareholder Reports. Shareholders can find important information about
the Fund in the Trust's annual report dated October 31, 1999, which previously
has been furnished to shareholders. Shareholders may request another copy of
this report by writing to the Trust at the above address, or by calling the
telephone number above.
PROPOSAL I.
APPROVAL OF A NEW
SUB-ADVISORY AGREEMENT
Introduction. FBR Fund Advisers, Inc. ("FBR Fund Advisers"), a Delaware
corporation located at Potomac Tower, 1001 Nineteenth Street North, Arlington,
VA 22209, has served as the Fund's investment adviser since the Fund's inception
on January 3, 1997. FBR Fund Advisers and its affiliates manage approximately
$880 million for numerous clients, including the Trust, individuals, banks and
thrift institutions, pension and profit sharing plans and trusts, estates and
charitable organizations.
<PAGE>
FBR Fund Advisers serves as investment adviser to the Fund pursuant to
an investment advisory contract dated December 31, 1996 (the "Advisory
Agreement"), which was last approved by the Board of Trustees at its December
15, 1999 meeting. Charles T. Akre, Jr. has served as the portfolio manager to
the Fund since the Fund's inception. Prior to ________, Mr. Akre served in such
capacity as a Managing Director of FBR Fund Advisers. However, Mr. Akre recently
formed Akre Capital Management, LLC ("ACM"), a Delaware limited liability
company that is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). Since _______, Mr. Akre
has served as portfolio manager to the Fund as an independent contractor to FBR
Fund Advisers.
FBR Fund Advisers intends to enter into a sub-advisory agreement with
ACM (the "Sub-Advisory Agreement") under which ACM will provide advisory
services to the Fund. Under applicable law, the Sub-Advisory Agreement must be
approved by shareholders of the Fund. Therefore, shareholders of the Fund are
asked in Proposal I to approve the Sub-Advisory Agreement, a form of which is
attached as Appendix A.
If Proposal I is approved, FBR Fund Advisers will continue to serve as
investment adviser to the Fund, and Mr. Akre will continue to serve as portfolio
manager to the Fund, although he will no longer serve in such capacity as an
independent contractor to FBR Fund Advisers. Instead, ACM will provide portfolio
management services to the Fund as an investment sub-adviser in accordance with
the terms of the Sub-Advisory Agreement.
For more information about the management of the Fund, the investment
advisory fees paid by the Fund during its last fiscal year, and other service
providers, please see Appendix B.
Description of the Sub-Advisory Agreement. Under the Sub-Advisory
Agreement, ACM will be responsible for making investment decisions and placing
orders for the purchase and sale of the Fund's investments directly with the
issuers or with brokers or dealers selected by it in its discretion. ACM will be
responsible for ensuring that it carries out its sub-advisory responsibilities
in a manner consistent with the investment objectives, policies and restrictions
of the Fund as set forth in the Fund's prospectus and statement of additional
information, the Trust's charter documents, applicable laws, and such other
investment policies, procedures and/or limitations as may be adopted by the
Trust with respect to the Fund. ACM also will furnish such reports, evaluations,
information or analyses to FBR Fund Advisers and the Trust in connection with
ACM's responsibilities under the Sub-Advisory Agreement as the Trust or FBR Fund
Advisers may request from time to time.
Consistent with the requirements of applicable law, the Sub-Advisory
Agreement provides that ACM generally is not liable to FBR Fund Advisers, the
Trust, the Fund, or to any shareholder of the Fund for any error in judgment or
mistake of law or for any act or omission in the course of, or connected with,
rendering services under the Sub-Advisory Agreement, or otherwise, except by
reason of willful misfeasance, bad faith or negligence, or reckless disregard of
its obligations and duties under the Sub-Advisory Agreement.
<PAGE>
The Sub-Advisory Agreement may be terminated by FBR Fund Advisers or
ACM, without penalty, upon 60 days' prior written notice. In addition, the
Sub-Advisory Agreement may be terminated by the Board or by a majority vote of
the Fund's shareholders, without penalty, upon 60 days' prior written notice.
The Sub-Advisory Agreement terminates automatically in the event of its
"assignment" (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")).
Under the Advisory Agreement, FBR Fund Advisers is entitled to an
investment advisory fee equal to 0.90% of the Fund's average daily net assets on
an annualized basis. This advisory fee, and total Fund operating expenses, will
not change as a result of shareholders approving Proposal I. FBR Fund Advisers
will continue to serve as investment adviser to the Fund, retain ultimate
responsibility for the management of the Fund, and provide investment oversight
and supervision. For ACM's services as investment sub-adviser, under the terms
of the Sub-Advisory Agreement, FBR Fund Advisers (and not the Fund) will pay ACM
the greater of (i) an annual fee equal to 0.40% of the Fund's average daily net
assets (which shall be accrued daily and paid monthly), or (ii) $3,500.00 per
month.
Neither the Board nor FBR Fund Advisers anticipates that approval of
the Sub-Advisory Agreement will cause any reduction in the quality or types of
services now provided to the Fund or have any adverse effect on FBR Fund
Advisers' ability to fulfill its obligations to the Fund. No change is
anticipated in the investment philosophies and practices currently followed by
the Fund.
If the Sub-Advisory Agreement is approved by shareholders, it will take
effect immediately. The Sub-Advisory Agreement will remain in effect for two
years from its effective date, and, unless earlier terminated, will continue
from year-to-year thereafter, provided that each such continuance is approved
annually (i) by the Board or by the vote of a majority of the outstanding voting
securities of the Fund and, in either case, (ii) by a majority of the Trustees
who are not parties to the Sub-Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party (the "Independent Trustees").
Evaluation by the Board of Trustees. At the March 23, 2000 meeting of
the Board, the Sub-Advisory Agreement was approved unanimously by the Trustees,
including all of the Independent Trustees. The Board, advised by counsel, has
determined that in approving the Sub-Advisory Agreement on behalf of the Fund,
the Fund can best assure itself that the same level of services currently
provided to the Fund by FBR Fund Advisers, and its officers and employees, will
continue without interruption under Advisory Agreement and the Sub-Advisory
Agreement. The Board believes that under the Agreements, the Fund will continue
to receive high quality services at a cost that is appropriate, reasonable, and
in the best interests of the Fund and its shareholders.
In determining whether or not it was appropriate to approve the
Sub-Advisory Agreement and to recommend approval to shareholders, the Board,
including the Independent Trustees, considered various materials and
representations provided by FBR Fund Advisers and ACM. In particular, the
Trustees considered the following information: (1) FBR Fund Advisers' and ACM's
representations that the same persons responsible for management of the Fund
currently are expected to continue to manage the Fund under the Sub-Advisory
Agreement, thus helping to ensure continuity of management; (2) that the
investment advisory fees paid by the Fund and total Fund operating expenses will
not be affected by implementation of the new Sub-Advisory Agreement; (3) the
financial condition of FBR Fund Advisers and ACM, and the expertise of their
personnel; (4) the nature and quality of the services currently rendered by FBR
Fund Advisers, as well as the nature and quality of services expected to be
rendered by ACM under the Sub-Advisory Agreement; (5) the fairness of the
compensation payable to FBR Fund Advisers and ACM; (6) the results achieved by
Mr. Akre for the Fund; and (7) the high quality of the personnel, operations,
financial condition, investment management capabilities, methodologies, and
performance of FBR Fund Advisers and ACM.
<PAGE>
The Independent Trustees also considered that while ACM recently had
registered as an investment adviser under the Advisers Act, Mr. Akre had
extensive portfolio management experience, maintained a significant personal
investment in the Fund (along with other family members), was continuing a
long-term relationship with FBR Fund Advisers and the Trust, and had served as
portfolio manager to the Fund since the Fund's inception.
Based upon its review, the Board, including the Independent Trustees,
determined that, by approving the Sub-Advisory Agreement, the Fund can best
assure itself that the same level of investment advisory services currently
provided to the Fund would continue without interruption under the Sub-Advisory
Agreement. The Board, including the Independent Trustees, also determined that
under the Advisory Agreement and the Sub-Advisory Agreement, the Fund would
continue to receive high quality services at a cost that would be appropriate,
reasonable, and in the best interests of the Fund and its shareholders.
Accordingly, after consideration of the above factors, and such other factors
and information it considered relevant, the Board unanimously approved the
Sub-Advisory Agreement and voted to recommend its approval by the Fund's
shareholders.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE SUB-ADVISORY AGREEMENT AS PROVIDED UNDER
PROPOSAL I. UNMARKED PROXIES WILL BE SO VOTED.
OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting
other than those set forth in this proxy statement. If other business should
properly come before the Meeting, proxies will be voted in accordance with the
judgment of the person named in the accompanying proxy.
VOTING INFORMATION
Proxy Solicitation. The costs of the Meeting, including the
solicitation of proxies, will be paid by the Fund. The principal solicitation
will be by mail, but proxies also may be solicited by telephone, telegraph, the
internet or personal interview by officers or agents of the Fund. Shareholder
Communications Corporation has been retained to assist with proxy solicitation
activities (including assembly and mailing of materials to shareholders). To
obtain the necessary representation at the Meeting, supplementary solicitations
may be made at a cost not expected to exceed approximately $3,500. The Fund will
forward to record owners proxy materials for any beneficial owners that such
record owners may represent.
<PAGE>
Shareholder Voting. Shareholders of record at the close of business on
April 14, 2000 (the "Record Date") are entitled to notice of, and to vote at,
the Meeting. Each shareholder is entitled to one vote for each full share and an
appropriate fraction of a vote for each fractional share held.
As of the Record Date, [ ] shares of the Fund, representing the
corresponding number of votes, were outstanding. As of March 31, 2000, the
persons owning of record or beneficially 5% or more of the Fund are set forth in
Appendix C.
Timely, properly executed proxies will be voted as instructed by
shareholders. A shareholder may revoke his or her proxy at any time prior to its
exercise by written notice addressed to the Secretary of the Trust at Potomac
Tower, 1001 Nineteenth Street North, Arlington, Virginia 22209, or by voting in
person at the Meeting. However, attendance in person at the Meeting, by itself,
will not revoke a previously tendered proxy.
The presence in person or by proxy of the holders of one-third of the
outstanding shares of the Fund is required to constitute the necessary quorum to
approve Proposal I at the Meeting. Shares held by shareholders present in person
or represented by proxy at the Meeting will be counted both for the purposes of
determining the presence of a quorum and for calculating the votes cast on the
issues before the Meeting.
Proxies that reflect abstentions or broker "non-votes" (that is, shares
held by brokers or nominees as to which (a) such persons have not received
instructions from the beneficial owner or other persons entitled to vote and (b)
the brokers or nominees do not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Pursuant to the rules and
policies of the New York Stock Exchange (the "Exchange"), members of the
Exchange may vote on Proposal I without instructions from the beneficial owners
of the Fund's shares.
In the event that a quorum is present at the Meeting but sufficient
votes to approve Proposal I are not received, the person named as proxy may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies or to obtain the vote required for approval of the proposal. Any such
adjournment will require the affirmative vote of a majority of those shares
represented at the Meeting in person or by proxy. If a quorum is present, the
person named as proxy will vote those proxies which they are entitled to vote
"FOR" the proposal in favor of such an adjournment and will vote those proxies
required to be voted "AGAINST" the proposal against any such adjournment.
Required Vote. Approval of Proposal I requires the vote of a "majority
of the outstanding voting securities" entitled to vote on the proposal, as
defined in the 1940 Act, which means the vote of 67% or more of the voting
securities entitled to vote on the proposal that are present at the Meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy, or the vote of more than 50% of the outstanding voting
securities entitled to vote on the proposal, whichever is less. Assuming the
presence of a quorum, abstentions and non-votes have the effect of a negative
vote on Proposal I.
Shareholder Proposals. The Fund does not hold regular shareholders'
meetings. Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholders' meeting should send their written
proposals to the Secretary of the Fund at the address set forth on the cover of
this proxy statement.
Proposals must be received a reasonable time prior to the date of a
meeting of shareholders to be considered for inclusion in the proxy materials
for a meeting. Timely submission of a proposal does not, however, necessarily
mean that the proposal will be included. Persons named as proxies for any
subsequent shareholders' meeting will vote in their discretion with respect to
proposals submitted on an untimely basis.
To ensure the presence of a quorum at the Meeting, prompt execution and
return of the enclosed proxy is requested. A self-addressed, postage-paid
envelope is enclosed for your convenience.
By Order of the Board of Trustees,
W. Bart Sanders, Secretary
Arlington, Virginia
April 24, 2000
<PAGE>
APPENDIX A
SUB-ADVISORY AGREEMENT
between
FBR FUND ADVISERS, INC.
and
AKRE CAPITAL MANAGEMENT, LLC
This AGREEMENT made as of the ___ day of _______, 2000, by and between
FBR Fund Advisers, Inc., a Delaware corporation (the "Advisor"), and Akre
Capital Management, LLC, a Delaware limited liability company (the
"Sub-Advisor").
WHEREAS, the FBR Family of Funds, a Delaware business trust (the
"Trust"), is authorized to issue one or more series of shares of beneficial
interest;
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Advisor and the Trust have entered into an Investment
Advisory Agreement ("Primary Agreement") under which the Advisor is obligated to
furnish investment advisory services to the Trust's series, and Section 1(c) of
the Primary Agreement permits the Advisor to, from time to time, retain a
sub-adviser to provide day-to-day portfolio management services to all or part
of a series' investment portfolio;
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish
day-to-day portfolio advisory services to the Trust's series listed on Schedule
A (each, a "Fund" and collectively, the "Funds"), and the Sub-Advisor represents
that it is willing and possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Subject to the approval of the Trust's Board of Trustees
(the "Board"), including a majority of the trustees who are not parties
to this Agreement or "interested persons" of any such party
("Independent Trustees"), and each Fund's shareholders, the Advisor
hereby appoints the Sub-Advisor to provide day-to-day advisory services
to each Fund, or to such assets of each Fund as determined by the
Advisor, for the period and on the terms set forth in this Agreement.
The Sub-Advisor accepts such appointment and agrees to furnish the
services described herein for the compensation described herein.
2. Delivery of Documents. The Sub-Advisor has delivered to the Advisor
copies of each of the following documents along with all amendments
thereto through the date hereof, and will promptly deliver to the
Advisor any future amendments and supplements thereto, if any:
<PAGE>
(a) the Sub-Advisor's registration statement, and any amendments
thereto, filed on Form ADV under the Investment Advisers Act of
1940, as amended ("Advisers Act"), as filed with the Securities
and Exchange Commission (the "Commission");
(b) the Sub-Advisor's Trade Allocation Policy; and
(c) the Sub-Advisor's Code of Ethics and Insider Trading Policy.
3. Sub-Advisory Services.
(a) General. The Sub-Advisor hereby agrees to provide day-to-day
portfolio advisory services to the Fund or Funds. The Sub-Advisor
shall regularly provide investment advice to the Fund or Funds,
or to the assets of any such Fund allocated to the Sub-Advisor by
the Advisor, and shall continuously supervise the investment and
reinvestment of cash, securities and other property composing the
assets of the Fund or Funds and, in furtherance thereof, shall,
in a manner consistent with the investment objective and policies
of each Fund as set forth in the Fund's then-current Prospectus
and Statement of Additional Information:
(i) furnish a continuous investment program for each Fund;
(ii) obtain and evaluate pertinent economic, statistical and
financial data, as well as other significant events and
developments, which affect the economy generally, investment
programs of each Fund, and the issuers of securities
included in each Fund's portfolios and the industries in
which each Fund engages, or which may relate to securities
or other investments which the Sub-Advisor may deem
desirable for inclusion in each Fund's portfolio;
(iii)determine which securities shall be included in the
portfolio of each Fund;
(iv) in its discretion and without prior consultation with the
Advisor, buy, sell, lend and otherwise trade any stocks,
bonds and other securities and investment instruments on
behalf of each Fund; and
(v) take, on behalf of each Fund, all actions the Sub-Advisor
may deem necessary or appropriate in order to carry into
effect such investment program and the Sub-Advisor's
functions as set forth above.
(b) Covenants. The Sub-Advisor shall carry out its investment
advisory and supervisory responsibilities in a manner consistent
with the investment objectives, policies, and restrictions
provided in: (i) each Fund's Prospectus and Statement of
Additional Information as revised and in effect from time to
time; (ii) the Trust's Trust Instrument, Bylaws or other
governing instruments, as amended from time to time; (iii) the
1940 Act; (iv) the Advisers Act; (v) other applicable laws; and
(vi) such other investment policies, procedures and/or
limitations as may be adopted by the Trust with respect to a Fund
and provided to the Sub-Advisor in writing by the Advisor or the
Trust. The Sub-Advisor agrees to use reasonable efforts to manage
each Fund so that it will qualify, and continue to qualify, as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended, and regulations issued
thereunder (the "Code"), except as may be authorized to the
contrary by the Trust's Board of Trustees. The management of each
Fund by the Sub-Advisor shall at all times be subject to the
supervision and review of the Advisor and the Trust's Board of
Trustees.
<PAGE>
(c) Books and Records. The Sub-Advisor agrees that all records which
it maintains for a Fund are the property of the Trust and agrees
to promptly surrender any of such records to the Trust upon the
Trust's or the Advisor's request. The Sub-Advisor further agrees
to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act any such records of the Funds required to be preserved
by such Rule and to keep all records required to be preserved by
the Advisers Act.
(d) Reports, Evaluations and other Services. The Sub-Advisor shall
furnish reports, evaluations, information or analyses to the
Advisor or the Trust with respect to the Funds and in connection
with the Sub-Advisor's services hereunder as the Advisor or the
Trust's Board of Trustees may request from time to time or as the
Sub-Advisor may otherwise deem to be necessary or appropriate.
The Sub-Advisor shall make recommendations to the Advisor or the
Trust's Board of Trustees with respect to Trust policies, and
shall carry out all policies that are adopted by the Board of
Trustees. The Sub-Advisor shall, subject to review by the Advisor
and the Board of Trustees, furnish such other services as the
Sub-Advisor shall from time to time determine to be necessary or
appropriate to perform its obligations under this Agreement. The
Sub-Advisor shall cooperate fully with the Trust's independent
auditors and with the Advisor in connection with any annual
audit, the preparation of filings with the Commission, and in
connection with any examination of the Trust or the Advisor by
the Commission.
(e) Aggregation of Securities Transactions. In executing portfolio
transactions for a Fund, the Sub-Advisor may, to the extent
permitted by applicable laws and regulations, but shall not be
obligated to, aggregate the securities to be sold or purchased
with those of other Funds or accounts advised by the Sub-Advisor.
The Sub-Advisor will aggregate trades if, in the Sub-Advisor's
reasonable judgment, such aggregation (i) will result in an
overall economic benefit to the Fund, taking into consideration
the advantageous selling or purchase price, brokerage commission
and other expenses, and trading requirements, and (ii) is not
inconsistent with the policies set forth in the Trust's
registration statement and the Fund's Prospectus and Statement of
Additional Information.
<PAGE>
In the event that the Sub-Advisor aggregates any securities
transactions as provided for above, the Sub-Advisor will allocate
the securities so purchased or sold, and the expenses incurred in
the transaction, in an equitable manner, consistent with its
fiduciary obligations to each Fund and such other accounts of the
Sub-Advisor.
(f) Meetings: The Sub-Advisor will meet with the Advisor on a
periodic basis, as reasonably requested by the Advisor, to review
the responsibilities of each party and discuss any operational
issues.
4. Use of Sub-Advisory Performance Information.
(a) With respect to each Fund for which the Sub-Advisor provides
investment advisory service pursuant to this Agreement, the
Sub-Advisor shall permit the Advisor and the Trust to include in
the Trust's Prospectus and/or Statement of Additional Information
performance figures relating to any private accounts and/or
registered investment companies that have substantially similar
investment objectives and policies to a Fund, provided that the
inclusion of any such prior performance satisfies all applicable
SEC rules, regulations, and interpretive positions.
(b) Nothing herein shall prohibit the Sub-Advisor or any of its
principals from using the name of a Fund, the Trust or the
Advisor in a biographical description of the Sub-Advisor or its
principals or prohibit the use of the performance of a Fund or
the Trust (to the extent permissible under the U.S. federal and
state securities laws and regulations) in sales literature,
advertising material or other communications of the Sub-Advisor
that describes the composite performance record of the
Sub-Advisor or its principals.
5. Representations and Warranties.
(a) The Sub-Advisor hereby represents and warrants to the Advisor as
follows:
(i) The Sub-Advisor is a limited liability company duly
organized and in good standing under the laws of the State
of Delaware and is fully authorized to enter into this
Agreement and carry out its duties and obligations
hereunder.
(ii) The Sub-Advisor is registered as an investment adviser with
the Commission under the Advisers Act, and is registered or
licensed as an investment adviser under the laws of all
applicable jurisdictions. The Sub-Advisor shall maintain
such registrations or licenses in effect at all times during
the term of this Agreement.
(iii)The Sub-Advisor is not the subject of any administrative
proceeding by any state, federal or other regulatory body.
(iv) The Sub-Advisor at all times shall provide service to the
Funds hereunder using its reasonable best judgment and
efforts to carry out its obligations to the Funds hereunder.
<PAGE>
(v) The Sub-Advisor represents that it shall maintain at all
times a fidelity bond with minimum coverage in an amount of
not less than $1,000,000 and a deductible of not less than
$50,000. The Sub-Advisor represents that it shall maintain
at all times errors and omissions and directors and officers
insurance with minimum coverage in an amount of not less
than $3,000,000 and a deductible of not less than $50,000
per incident. The fidelity bond and insurance policies
required by this section shall provide for cancellation
notices to the Advisor. The Sub-Advisor shall bear the
entire costs of maintaining the fidelity bond and insurance
coverage required by this section. The Sub-Advisor shall
provide to the Advisor on an annual basis copies of the
fidelity bond and insurance policies required by this
section. If, at any time during the term of this Agreement,
the Sub-Advisor fails to maintain the minimum coverage
amounts specified by this section, the Advisor may terminate
this Agreement or amend the amount of compensation as
specified in paragraph 6 of this Agreement.
(b) The Advisor hereby represents and warrants to the Sub-Advisor as
follows:
(i) The Advisor is a corporation duly organized and in good
standing under the laws of the State of Delaware and is
fully authorized to enter into this Agreement and carry out
its duties and obligations hereunder.
(ii) The Advisor is registered as an investment adviser with the
Commission under the Advisers Act, and is registered or
licensed as an investment adviser under the laws of all
applicable jurisdictions. The Advisor shall maintain such
registrations or licenses in effect at all times during the
term of this Agreement.
(iii)The Advisor is not the subject of any administrative
proceeding by any state, federal or any other regulatory
body.
(iv) The Advisor at all times shall provide service to the Funds
using its reasonable best judgement and efforts to carry out
its obligations to the Funds.
(v) To the extent that the Funds incur losses as a result of the
Advisor's failure to adequately fulfill its duties to the
Funds, the Advisor agrees that it shall be solely
responsible to make the Funds whole.
6. Compensation. As compensation for the services which the Sub-Advisor is
to provide pursuant to Paragraph 3, the Advisor shall pay to the
Sub-Advisor the greater of (i) an annual fee, computed and accrued
daily and paid in arrears on the first business day of every month, at
the rate set forth opposite each Fund's name on Schedule A, which shall
be a percentage of the average daily net assets of the Fund (computed
in a manner consistent with the Fund's most recent Prospectus and
Statement of Additional Information) determined as of the close of
business on each business day throughout the month, or (ii) $3,500 per
month. The fee for any partial month under this Agreement shall be
calculated on a proportionate basis.
<PAGE>
7. Interested Persons. It is understood that, to the extent consistent
with applicable laws, the Trustees, officers and shareholders of the
Trust are, may be, or may become, interested in the Sub-Advisor as
directors, officers or otherwise, and that directors, officers and
shareholders of the Sub-Advisor are, may be, or may become, similarly
interested in the Trust.
8. Non-Exclusive Services; Limitation of Sub-Advisor's Liability. The
services of the Sub-Advisor provided to each of the Funds are not to
be deemed exclusive and the Sub-Advisor may render similar services to
others and engage in other activities. In the absence of willful
misfeasance, bad faith, negligence or reckless disregard of
obligations or duties hereunder on the part of the Sub-Advisor, or a
breach of fiduciary duty with respect to receipt of compensation,
neither the Sub-Advisor nor any of its directors, officers,
shareholders, agents, or employees shall be liable or responsible to
the Advisor, the Trust, the Funds or to any shareholder of the Funds
for any error of judgment or mistake of law or for any act or omission
in the course of, or connected with, rendering services hereunder or
for any loss suffered by the Advisor, the Trust, a Fund or any
shareholder of a Fund in connection with the performance of this
Agreement.
9. Effective Date; Modifications; Termination. This Agreement shall
become effective on _______ , 2000.
(a) This Agreement shall continue in force for an initial term of two
years from its effective date with respect to a Fund. Thereafter,
this Agreement may be renewed as to each Fund for successive
annual periods, provided that the Agreement is approved by the
Trust's Board, including a majority of Independent Trustees.
(b) Notwithstanding the foregoing provisions of this Paragraph 9,
either party hereto may terminate this Agreement at any time on
sixty (60) days' prior written notice to the other, without
payment of any penalty. Such a termination by the Advisor may be
effected severally as to any particular Fund. In addition, this
Agreement may be terminated by the Board of Trustees or, with
respect to any Fund, by a majority vote of the Fund's
shareholders, without penalty, upon 60 days' prior written
notice. This Agreement shall terminate automatically in the event
of its assignment.
10. Limitation of Liability of Trustees and Shareholders. The Sub-Advisor
acknowledges the following limitation of liability: The terms "FBR
Family of Funds" and "Trustees" refer, respectively, to the Trust and
the Trustees, as trustees but not individually or personally, acting
from time to time under the Trust Instrument, to which reference is
hereby made, such reference being inclusive of any and all amendments
thereto so filed or hereafter filed. The obligations of the "FBR
Family of Funds" entered into in the name or on behalf thereof by any
of the Trustees, representatives or agents are made not individually,
but in such capacities and are not binding upon any of the Trustees,
shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with the Trust or a
Fund must look solely to the assets of the Trust or Fund for the
enforcement of any claims against the Trust or Fund.
11. Certain Definitions. The terms "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the
1940 Act. References in this Agreement to the 1940 Act and the Advisers
Act shall be construed as references to such laws as now in effect or
as hereafter amended, and shall be understood as inclusive of any
applicable rules, interpretations and/or orders adopted or issued
thereunder by the Commission.
<PAGE>
12. Independent Contractor. The Sub-Advisor shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Board of Trustees of the
Trust or the Advisor from time to time, have no authority to act for or
represent a Fund in any way or otherwise be deemed an agent of a Fund
or of the Advisor.
13. Structure of Agreement. This Agreement is between the Advisor and the
Sub-Advisor and is separate and independent from any agreements between
the Advisor and the Trust. The Sub-Advisor shall have no recourse
against the Trust or any Fund of the Trust. The responsibilities and
benefits set forth in this Agreement shall refer to each Fund severally
and not jointly. No Fund shall have any responsibility for any
obligation of the Advisor arising out of this Agreement. Without
otherwise limiting the generality of the foregoing:
(a) any breach of any term of this Agreement regarding the Advisor
with respect to any one Fund shall not create a right or
obligation with respect to any other Fund;
(b) under no circumstances shall the Sub-Advisor have the right to
set off claims relating to the services to a particular Fund by
applying property of that particular Fund or any other Fund or
account managed by the Sub-Advisor; and
(c) the business and contractual relationships created by this
Agreement, consideration for entering into this Agreement, and
the consequences of such relationship and consideration relate
solely to the Advisor and Sub-Advisor.
This Agreement is intended to govern only the relationships between the
Advisor, on the one hand, and the Sub-Advisor, on the other hand, and
(except as specifically provided above in this Paragraph 13) is not
intended to and shall not govern (i) the relationship between the Trust
and any Fund, (ii) the relationships among the respective Funds, or
(iii) the relationship between the Advisor and the Trust or any of the
Funds.
14. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, provided that nothing herein shall be construed in a
manner inconsistent with the 1940 Act or the Advisers Act.
15. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and, to this extent,
the provisions of this Agreement shall be deemed to be severable.
16. Notices. Notices of any kind to be given to the Advisor hereunder by
the Sub-Advisor shall be in writing and shall be duly given if mailed
or delivered to the Advisor at Potomac Tower, 1001 Nineteenth Street
North, Arlington, Virginia 22209, Attention: W. Bart Sanders or at
such other address or to such individual as shall be so specified by
the Advisor, or if sent via facsimile, to the recipient's current
facsimile number as contained in the sender's records. Notices of any
kind to be given to the Sub-Advisor shall hereunder by the Advisor be
in writing and shall be duly given if mailed or delivered to the
Sub-Advisor at 1001 Nineteenth Street North, Arlington, Virginia
22209, Attention: Charles T. Akre, Jr. or at such other address or to
such individual as shall be so specified by the Sub-Advisor, or if
sent via facsimile, to the recipient's current facsimile number as
contained in the sender's records. Notices shall be effective upon
delivery.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
written above.
FBR FUND ADVISERS, INC. AKRE CAPITAL MANAGEMENT, LLC
By:___________________________ By: _________________________
Name: Name:
Title Title:
<PAGE>
Schedule A
Name of Fund Fee*
FBR Small Cap Value Fund 0.40%
- ------------
*As a percentage of average daily net assets.
<PAGE>
APPENDIX B
Officers of the Trust
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Principal Occupations During Last Five Years
Name, Age,and Address Position with Trust
- --------------------------------------------------------------------------------------------------------------------
C. Eric Brugel, 36 Trustee, Chairman of the Chief Operating Officer of fbr.com, April
Potomac Tower Board, President 1999 to present; Managing Director of
1001 Nineteenth Street North Friedman, Billings, Ramsey & Co., Inc. from
Arlington, Virginia 22209 December 1993 to April 1999.
- --------------------------------------------------------------------------------------------------------------------
Winsor H. Aylesworth, 52 Vice President and Treasurer Portfolio Manager for FBR Fund Advisers
101 Federal Street, Suite 2130 since September 1998; President of
Boston, MA 02110 GrandView Advisers, Inc. from 1994 to
September 1998.
- --------------------------------------------------------------------------------------------------------------------
W. Bart Sanders, 35 Senior Vice President of Fund Head Trader for FBR Fund Advisers.
Potomac Tower Operations and Secretary
1001 Nineteenth Street North
6th Floor
Arlington, Virginia 22209
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Advisory Fees
For its services, FBR Fund Advisers is entitled to a fee, accrued daily
and paid monthly, equal to 0.90% of the Fund's average daily net assets on an
annualized basis. However, under the terms of an expense limitation agreement
between FBR Fund Advisers and the Trust, FBR Fund Advisers waives a portion of
its investment advisory fees and assumes certain expenses of the Fund to the
extent that the total operating expenses of the Fund exceed 1.95% of the Fund's
average daily net assets. For the fiscal year ended October 31, 1999, FBR Fund
Advisers was entitled to payment of investment advisory fees equal to $138,533,
of which it waived $82,735, so that the Trust, on behalf of the Fund, paid
$55,796 in net investment advisory fees to FBR Fund Advisers during that period.
This expense limitation arrangement will remain in place until February 28,
2001, and then may continue from year to year thereafter in accordance with its
terms.
Other Information
Distributor. FBR Investment Services, Inc., Potomac Tower, 1001
Nineteenth Street North, Arlington, Virginia 22209, serves as the Fund's
distributor. FBR Investment Services, Inc. is an affiliate of FBR Fund Advisers.
During the fiscal year ended October 31, 1999, the Fund paid Friedman, Billings,
Ramsey Group, Inc., an affiliate of FBR Investment Services, Inc., aggregate
commissions of $40,061, representing 16.07% of the Fund's aggregate brokerage
commissions paid.
Administrator. Bear Stearns Funds Management Inc., 575 Lexington
Avenue, New York, New York 10022, serves as the Fund's administrator.
<PAGE>
APPENDIX C
As of March 31, 2000, the following person owned of record 5% or more
of the Fund's shares:
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Controlling Party or Principal Holder of
Securities and Address Shares Owned % Owned
- -----------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc. 224,489.38% 35.04%
Special Custody Account for Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROXY
FBR FAMILY OF FUNDS
FBR Small Cap Value Fund
SPECIAL MEETING OF SHAREHOLDERS
Thursday, June 1, 2000
The undersigned hereby appoints W. Bart Sanders, as his/her attorney
and proxy with full power of substitution to vote and act with respect to all
shares of the Fund held by the undersigned at the special meeting of
shareholders of the Fund to be held at 2:00 p.m., New York time, on June 1, 2000
at the offices of Friedman Billings Ramsey Group, Inc., Potomac Tower, 1001
Nineteenth Street North, 6th Floor, Roosevelt Conference Room, Arlington,
Virginia 22209, or as adjourned from time to time (the "Meeting"), and instructs
him to vote as indicated on the matters referred to in the Proxy Statement for
the Meeting, receipt of which is hereby acknowledged, with discretionary power
to vote upon such other business as may properly come before the Meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE FUND. The Board
of Trustees recommends that you vote "FOR" the following proposal:
I. To approve a new Sub-Advisory Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted as specified. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL.
<PAGE>
Receipt of the Notice of Meeting and Proxy Statement is hereby
acknowledged.
Dated _________________________, 2000
______________________________________________
Name of Shareholder(s) -- Please print or type
______________________________________________
Signature(s) of Shareholder(s)
______________________________________________
Signature(s) of Shareholder(s)
This proxy must be signed by the beneficial owner of Fund shares. If
signing as attorney, executor, guardian or in some representative capacity or as
an officer of a corporation, please add title as such.
PLEASE VOTE, SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
