FBR FAMILY OF FUNDS, N-30D, 1998-12-31

FBR FAMILY OF FUNDS
N-30D, 1998-12-31

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<PAGE>
FBR FAMILY OF FUNDS

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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

[LOGO]

ANNUAL REPORT
OCTOBER 31, 1998
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

LETTER TO SHAREHOLDERS

December 11, 1998

Dear Shareholder:

We are pleased to bring you this annual report of the FBR Family of Funds
(the "Trust") for the fiscal year ended October 31, 1998. This year brought many
changes, including a rise in our shareholder base from 3,800 to nearly 11,000,
and the addition of the FBR Realty Growth Fund. With this new fund we were also
fortunate to bring on a strong addition to our portfolio management team in Skip
Aylesworth.

As a shareholder, it is probably no surprise to you that our second year of
existence was more difficult than our first year. Our funds are focused in
financial services, small caps and real estate. This year, these areas have had
poor market conditions, and have significantly lagged the broad, large cap
focused, market indices such as the S&P 500 and the technology heavy NASDAQ
Composite. Calendar year to date through November 30, there was a 34% return
differential between the small cap Russell 2000 Index and the NASDAQ Composite
Index, and a 41% difference between the NASDAQ and the average publicly traded
savings and loan.

Along with the return disparity between large company and small company
stocks, 1998 has been a year of tremendous volatility. From April 21st to
October 8th, the Russell 2000 declined 36.8%, while the NASDAQ Bank Index was
down 35.3%. This is significantly greater than the 19.5% decline in the S&P 500
over the same time period. Things have recovered significantly since then, but
this is an illustration of the difficult recent market environment for small cap
and financial services companies.

While the events of this year are important, we are more concerned with
providing good results over longer time periods. Included in this report are
performance reports and comparisons from each fund's commencement of investment
operations through October 31, 1998. As you will see, our portfolio managers
have done well in comparison to their peers as well as the market sectors in
which they operate.

The most important by-product of difficult market conditions is the
marvelous investment opportunities that our portfolio managers are seeing. In
the sections that follow, our portfolio managers will discuss factors that have
affected their investments this year, and how they intend to approach the
opportunities of the future.

CHUCK AKRE, PORTFOLIO MANAGER -- FBR SMALL CAP VALUE FUND

You may have been asking yourself, "What happened to the shares of the FBR
Small Cap Value Fund this summer?" or for that matter, "What happened to the
market?" Basically what happened was that small cap stocks were in the way of
investors trying to hold only the most liquid and most marketable securities.
That is, they were discarded with abandon by investors of all stripes, seeking
to hold only the most liquid recognizable names in their portfolios.

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According to Jim Glassman writing in the WASHINGTON POST, the Russell 2000
(the small cap index) had declined nearly 30% for the year by the 10th of
October and was close to the worst such decline EVER for small cap stocks.

As we write this letter, small cap stocks have enjoyed a greater than 25%
rally off their lows, but are still down for the year. Anecdotally, many
professional investors we speak with are taking the view that small cap stocks
are still significantly undervalued. We agree, and our objective is to
capitalize on this situation by making investments that are likely to deliver
multi-year returns at above average levels. Although we are disappointed that
the fund is down this year, our investment process has helped us accomplish this
objective on a longer-term basis. Our cumulative return from inception January
2, 1997 through October 31, 1998 is 25.85%, which is 13.39% on an annualized
basis. This compares favorably to the Lipper Small Cap Fund Index, which was up
just 1.38% on a cumulative basis and 0.75% on an annualized basis during the
same time period.

To help accomplish our goals in this environment we have chosen to further
concentrate the assets in a smaller selection of truly outstanding businesses.
At the end of October we held just twenty companies in the portfolio. We are
constantly looking to refine the list to make certain that we hold only
outstanding businesses. In fact, our focus is so intense that the top five
holdings amount to approximately 48% of our assets, and the top ten amount to
approximately 78% of the portfolio.

Intuitively we all understand that small cap stocks should perform better
than large cap stocks because they are small and have (theoretically) the
ability to grow at a faster rate. Our focus is not specifically on the fastest
growing companies. Our focus is primarily on those that are already earning high
returns on shareholders' capital, while continuing to grow nicely. Our ideal
investment couples high returns on capital with shareholder-oriented management,
where there is significant opportunity to re-invest excess cash flow. We buy
these companies when they appear to us to be undervalued. Occasionally we do
invest in companies that we believe are on the verge of showing very high
returns, and as a result, offer us an even greater discount to proper valuation.

We cannot predict where we will end this year or next. But you should take
comfort in the fact that our experience helps us understand that our current
holdings will likely reward us well over a long period of years. While periods
of short-term market volatility cannot be avoided, our long-term commitment to
our investment discipline remains unchanged.

DAVID ELLISON, PORTFOLIO MANAGER -- FBR FINANCIAL SERVICES FUND AND FBR SMALL
CAP FINANCIAL FUND

The last twelve months have reminded me that money management can, at times,
be a lonely vigil. After many years of financial stocks doing well relative to
the market, this past year was simply not that good. I won't bore you with a
complicated explanation. I have been through my share of difficult years and the
reason is simple: earnings. Significant earnings growth is what produced the
rally in financial stocks over the last six years. A significant decline in that
growth rate, which became obvious by mid-year, is what produced the poor
performance. The formula is simple. Stocks follow earnings.

What created the earnings slowdown? Two big things. First, the spread
between borrowing costs and investment yields have been declining for three
years and finally got thin enough to start impacting the bottom line. Experts
use the term "flat yield curve" to describe this problem. Second, bad credit
expenses stopped declining and in some cases increased. After many years
benefiting from an improving economy, credit conditions simply couldn't get any
better.

What about the future? Unfortunately it's not predictable. However, the
funds own companies that have alert and proactive management. They have
weathered difficult times before and are doing what is necessary to weather
current conditions. Said another way -- the ones that do well when things are
tough are also the ones that do well when things improve and get better.

3
<PAGE>
What are the companies we own doing? Nothing unusual. They are sticking to
what I believe are the five basic earnings drivers in the financial services
industry. They are keeping credit exposure in check, getting under performing
assets and high priced liabilities off of the balance sheet, improving fee
income, keeping expenses down and taking advantage of consolidation
opportunities. In other words -- there is nothing new in the financial services
business. The funds own and will continue to own companies that are focused on
the basics.

Throughout my career investing in the financial services industry, I have
found that good results are not achieved by finding extraordinary opportunities,
but by finding companies with easy to understand earnings streams, run by good
management, at the lowest possible price to earnings multiples. Despite the
factors mentioned earlier, I am confident that sticking with this approach will
continue to produce solid returns in the long term.

SKIP AYLESWORTH, PORTFOLIO MANAGER -- FBR REALTY GROWTH FUND

This is the first time I have reported to you as the portfolio manager of
the new FBR Realty Growth Fund. As you may be aware, the fund is a continuation
of the GrandView-SM- Realty Growth Fund, which I managed from its inception,
that was consolidated in September with the GrandView-SM-
S&P-Registered Trademark- REIT Index Fund when it joined the FBR Family of
Funds. In this one transaction, the FBR organization gained a new investment
product and I gained a great opportunity to join a terrific organization with
many more capabilities and resources to help you and me prosper as we go forward
in the world of real estate securities.

In reviewing the year for the industry and the fund, one can only describe
it as disappointing and tumultuous. While the overall United States economy
remained strong and most real estate markets remained in general supply and
demand equilibrium, real estate securities were down an average of 14.76%
(NAREIT Total Return Index) while the overall stock market as measured by the
Dow Jones Industrial Average was up 17.50%. The fund during this period
performed generally in line with the overall real estate market and was down
17.42% for the one-year period. In my opinion, there was no single thing that
caused the sector's overall poor performance. However there were a series of
events that all provided negative impacts. They were:

- A change of investors' perception about the real estate investment trust
("REIT") industry from being a "rapid growth industry" with rapidly
increasing cash flow, to a more mature, slower growing industry. As a
result of this changed sentiment, security multiples contracted, dividend
yields increased, while share prices declined.

- The 1998 tax changes imposed on the paired share REITs. Although, mainly
impacting only four REITs (Starwood Hotels & Resorts, Patriot American
Hospitality, Inc., First Union Real Estate Investments and Meditrust
Companies), it cast a negative feeling over the whole industry throughout
most of the year.

- The slowdown in the world economy and various international financial
crises had two impacts on the industry. One was to cause investors to
cherish safety and liquidity. This flight to quality created a short-term
lack of credit for real estate investment. REITs were effectively stopped
in their tracks from raising additional equity and/or obtaining loans and
hence making further acquisitions. The other was an investor concern that
slowing economic conditions might limit the demand for real estate.

- The flat yield curve of the last twelve months also impacted many real
estate companies whose earnings are derived from "spread lending". The
mortgage and hybrid REIT industry had earnings reduced or eliminated as
they tried to deal with the challenging rate environment and the high
frequency of refinancing.

4
<PAGE>
The alignment of all these negative moons over the real estate industry in
1998 combined with the usual blunder or two by specific companies, and you have
a challenging investment atmosphere as we enter 1999. In this environment why
would any investor, including the fund, invest in the asset class? Here are a
few simple answers.

- High Income: With the industry-wide price corrections, dividend yields are
now at record levels and compare favorably with other asset classes. There
are still good real estate companies out there with good earnings streams,
secure high dividends, with prospects of further increases.

- Asset Diversification: As an asset class, real estate has historically
been used to diversify an investment portfolio. In general, most real
estate portfolios exhibit a low "Beta" to the S&P similar to utility
portfolios. Add this characteristic to the high initial dividend yield,
and the asset class compares favorably with other income security groups
such as utilities and bonds.

- Liquidity: Real estate securities provide the only way to own real estate
with any degree of liquidity.

- Inflation Protection: Historically, real estate has been a good hedge
against inflation as it has the ability to pass through increased costs in
the form of rent increases.

- American-Based Hard Asset: As world economies have their ups and downs,
American-based real estate will provide a haven for foreign investors who
are looking for safe investments relative to those within their own
countries.

- Opportunities for Capital Appreciation: Real estate securities offer a way
to participate in real estate appreciation as a result of increasing cash
flows at the property level.

One of the unique characteristics of the fund is that it follows a three
pronged investment philosophy to achieve its investment goal of capital
appreciation. In reviewing a few of our larger holdings as of October 31, 1998,
I hope to give insight into the use of this unique approach.

MEDITRUST COMPANIES (MT, NYSE): This is our largest holding at fiscal year
end. One of the ill fated paired share REITs, MT's stock is down over 60% from a
year ago. MT is one of the largest REITs and invests in healthcare, hotel and
golf course facilities. We originally held a modest position in MT under our
"Blue Chip" strategy but as the price fell, MT became much more of a "Value and
Opportunistic" play. Currently, the company sells at one of the lowest cash flow
multiples in the industry with a recently reduced dividend yield in excess of
11% (Value). The Bass family (which owns in excess of 9% of the stock) is
currently the largest single shareholder and is orchestrating the company's
future (Opportunistic).

INNSUITES HOSPITALITY TRUST (IHT, NYSE): This company was originally known
as Realty Refund Trust and was a distressed mortgage REIT that specialized in
wrap around mortgages. As Realty Refund Trust started to deal with its balance
sheet, we began investing in the stock under an "Opportunistic" strategy. The
company was eliminating debt, bringing in new investors and new management, and
developing a new business strategy. Today the company, which owns several suite
hotels under the IHT name, has resumed paying dividends and is focused on a new
business strategy. It is now considered an investment under our "Value" strategy
having been successful in its turnaround, and graduating from the opportunistic
group of fund investments.

CATELLUS DEVELOPMENT CORPORATION (CDX, NYSE): This real estate company
exhibits all the characteristics that we look for in our "Blue Chip" investment
approach. The company is a well-established real estate firm that owns and
develops high quality real estate projects predominately in the San Francisco
bay area. This part of the country has been, and should continue to be, an area
with low vacancies and good upward pressure on rents. The company is a C-Corp
rather than a REIT. This is the right structure for companies that concentrate
on development

5
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or own high end, cash demanding properties. It allows the company to eliminate
its dependency on the equity markets for cash as it is allowed to keep taxable
income as retained earnings rather than distribute it to shareholders as REITs
are required to do. Management is not only seasoned in real estate but also the
public markets. This is a good company, in a good area, with high quality assets
and strong management. Hence a "Blue Chip" holding.

By implementing a diversified investment strategy for the fund, we are not
limited to just investing in one type of real estate company that fits only one
type of investment profile. Concentrating on growth, while not ignoring income,
allows us the flexibility to scan the complete spectrum of real estate
securities for appropriate investments. We thank you for your confidence in
1998, and look forward to providing you with appropriate returns in the real
estate sector going forward.

IN CONCLUSION

We hope you have found this helpful in evaluating your investment in the FBR
Family of Funds. If you have any questions, or would like a free prospectus,
please call our toll-free investor information line at 1-888-888-0025.

Sincerely,

[SIGNATURE]
C. Eric Brugel
Chairman & President
FBR Family of Funds

- ----------------

Investments in real estate companies and REITs may be adversely affected by a
decline in value of real estate assets, fluctuations in interest rates, credit
quality trends and the cash flow of underlying assets. Certain REITs have
relatively small market capitalizations and, therefore, may not respond to
market rallies or downturns as much as other types of equity securities.

Total return represents past performance, which is no guarantee of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. FBR Fund Advisers, Inc. waived a portion of its advisory fees and agreed
to voluntarily reimburse a portion of the operating expenses, as necessary, to
maintain the expense limitation, as set forth in the notes to the financial
statements during this time period. Without waivers and related reimbursements,
returns would have been different.

6
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[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2)(3) VS. VARIOUS INDICES
(UNAUDITED)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR FINANCIAL SERVICES FUND
LIPPER FINANCIAL
S&P 500 SERVICES
CLASS A SHARES COMPOSITE INDEX FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Jan. 31, 1997 $10,292 $10,762 $10,684
Apr. 30, 1997 $10,567 $10,936 $11,006
Jul. 31, 1997 $12,917 $13,086 $13,431
Oct. 31, 1997 $13,358 $12,593 $13,678
Jan. 31, 1998 $14,225 $13,551 $14,458
Apr. 30, 1998 $16,649 $15,425 $16,756
Jul. 31, 1998 $15,923 $15,607 $16,586
Oct. 31, 1998 $14,309 $15,362 $14,438
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1998 ANNUAL(5)
------------------- ------------
<S> <C> <C>
FBR Financial Services Fund(2)
Class A shares(4)............................ 7.12% 21.63%
S&P 500 Composite Index(1)..................... 21.99 26.44
Lipper Financial Services Fund Index(1)........ 5.56 22.22
</TABLE>

- ------------------------
(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects all Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are unmanaged, do not
incur sales charges and/or expenses and are not available for investment.
(2) FBR Fund Advisers, Inc. waived a portion of its advisory fee and agreed to
voluntarily reimburse a portion of the Fund's operating expenses, as
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and
expense reimbursements, if any; total returns would have been lower had
there been no assumption of fees and/or expenses in excess of expense
limitations.
(3) The returns of Class B and C shares (which commenced their initial public
offerings on April 24, 1998 and May 8, 1998, respectively) would have been
higher than Class A shares if its operations had commenced on such dates.
The higher returns are due to the fact that there is no initial sales load
charged to Class B and C shares.
(4) Total returns do not include the initial maximum sales charge (5.50%). Such
charges were not in effect at the beginning of the period. If such charges
were in effect, the total returns shown would be lower.
(5) For the period January 3, 1997 (commencement of investment operations)
through October 31, 1998.

7
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP FINANCIAL FUND

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2)(3) VS. VARIOUS INDICES
(UNAUDITED)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR SMALL CAP FINANCIAL FUND
LIPPER FINANICAL
SERVICES
CLASS A SHARES RUSSELL 2000 INDEX FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Jan. 31, 1997 $10,258 $10,301 $10,684
Apr. 30, 1997 $10,617 $9,604 $11,006
Jul. 31, 1997 $12,775 $11,648 $13,431
Oct. 31, 1997 $14,608 $12,213 $13,678
Jan. 31, 1998 $15,372 $12,159 $14,458
Apr. 30, 1998 $17,081 $13,695 $16,756
Jul. 31, 1998 $15,507 $11,936 $16,586
Oct. 31, 1998 $13,150 $10,791 $14,438
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1998 ANNUAL(5)
------------------ ------------
<S> <C> <C>
FBR Small Cap Financial Fund(2)
Class A shares(4)............................ (9.99)% 16.14%
Russell 2000 Index(1).......................... (11.64) 4.25
Lipper Financial Services Fund Index(1)........ 5.56 22.22
</TABLE>

- ------------------------
(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects all Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are unmanaged, do not
incur sales charges and/or expenses and are not available for investment.
(2) FBR Fund Advisers, Inc. waived a portion of its advisory fee and agreed to
voluntarily reimburse a portion of the Fund's operating expenses, as
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and
expense reimbursements, if any; total returns would have been lower had
there been no assumption of fees and/or expenses in excess of expense
limitations.
(3) The returns of Class B and C shares (which commenced their initial public
offerings on April 21, 1998 and April 24, 1998, respectively) would have
been higher than Class A shares if its operations had commenced on such
dates. The higher returns are due to the fact that there is no initial sales
load charged to Class B and C shares.
(4) Total returns do not include the initial maximum sales charge (5.50%). Such
charges were not in effect at the beginning of the period. If such charges
were in effect, the total returns shown would be lower.
(5) For the period January 3, 1997 (commencement of investment operations)
through October 31, 1998.

8
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP VALUE FUND

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2)(3) VS. VARIOUS INDICES
(UNAUDITED)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR SMALL CAP VALUE FUND
LIPPER SMALL-CAP
CLASS A SHARES RUSSELL 2000 INDEX FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Jan. 31, 1997 $10,192 $10,301 $10,352
Apr. 30, 1997 $9,750 $9,604 $9,091
Jul. 31, 1997 $12,675 $11,648 $11,346
Oct. 31, 1997 $13,917 $12,213 $11,739
Jan. 31, 1998 $14,215 $12,159 $11,417
Apr. 30, 1998 $15,751 $13,695 $12,943
Jul. 31, 1998 $14,327 $11,936 $11,527
Oct. 31, 1998 $12,585 $10,791 $10,138
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1998 ANNUAL(5)
------------------ ------------
<S> <C> <C>
FBR Small Cap Value Fund(2)
Class A shares(4)............................ (9.57)% 13.39%
Russell 2000 Index(1).......................... (11.64) 4.25
Lipper Small Cap Fund Index(1)................. (13.64) 0.75
</TABLE>

- ------------------------
(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects all Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are unmanaged, do not
incur sales charges and/or expenses and are not available for investment.
(2) FBR Fund Advisers, Inc. waived a portion of its advisory fee and agreed to
voluntarily reimburse a portion of the Fund's operating expenses, as
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and
expense reimbursements, if any; total returns would have been lower had
there been no assumption of fees and/or expenses in excess of expense
limitations.
(3) The returns of Class B and C shares (which commenced their initial public
offerings on April 23, 1998 and May 26, 1998, respectively) would have been
higher than Class A shares if its operations had commenced on such dates.
The higher returns are due to the fact that there is no initial sales load
charged to Class B and C shares.
(4) Total returns do not include the initial maximum sales charge (5.50%). Such
charges were not in effect at the beginning of the period. If such charges
were in effect, the total returns shown would be lower.
(5) For the period January 3, 1997 (commencement of investment operations)
through October 31, 1998.

9
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR REALTY GROWTH FUND

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CLASS A SHARES(1)(2) VS. VARIOUS INDICES
(UNAUDITED)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
FBR REALTY GROWTH FUND
S&P 500 NAREIT TOTAL
CLASS A SHARES COMPOSITE INDEX RETURN INDEX
<S> <C> <C> <C>
Jul. 3, 1995 $9,550 $10,000 $10,000
Jul. 31, 1995 $9,283 $10,287 $10,156
Oct. 31,1995 $9,230 $10,709 $10,303
Jan. 31, 1996 $10,108 $11,780 $11,188
Apr. 30, 1996 $10,023 $12,178 $11,294
Jul. 31, 1996 $10,924 $11,982 $11,862
Oct. 31, 1996 $12,087 $13,277 $12,962
Jan. 31, 1997 $14,343 $14,869 $15,068
Apr. 30, 1997 $14,114 $15,226 $14,602
Jul. 31, 1997 $15,743 $18,215 $16,264
Oct. 31, 1997 $16,981 $17,529 $17,081
Jan. 31, 1998 $17,424 $18,862 $17,630
Apr. 30, 1998 $18,100 $21,471 $17,050
Jul. 31, 1998 $16,850 $21,725 $15,699
Oct. 31, 1998 $14,023 $21,383 $14,560
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
OCTOBER 31, 1998 ANNUAL(4)
------------------ ------------
<S> <C> <C>
FBR Realty Growth Fund(2)
Class A shares(3)............................ (21.14)% 10.67%
S&P 500 Composite Index(1)..................... 21.99 25.60
NAREIT Total Return Index(1)................... (14.76) 11.93
</TABLE>

- ------------------------
(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects all Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are unmanaged, do not
incur sales charges and/or expenses and are not available for investment.
(2) FBR Fund Advisers, Inc. waived a portion of its advisory fee and agreed to
voluntarily reimburse a portion of the Fund's operating expenses, as
necessary, to maintain the expense limitation, as set forth in the notes to
the financial statements. Total returns shown include fee waivers and
expense reimbursements, if any; total returns would have been lower had
there been no assumption of fees and/or expenses in excess of expense
limitations. Commencing September 21, 1998, FBR Fund Advisers, Inc. assumed
the daily portfolio management responsibility for the Fund. For the period
July 3, 1995 through September 18, 1998, the Fund's investment adviser was
GrandView Advisers, Inc.
(3) Reflects the initial maximum sales charge in effect at the beginning of the
period (4.50%). Without the applicable sales charge, the total returns would
have been (17.42)% and 12.21%, respectively, for each period shown.
(4) For the period July 3, 1995 (commencement of investment operations for the
GrandView-SM- Realty Growth Fund) through October 31, 1998.

10
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 78.6%
BANKS - COMMERCIAL -- 24.5%
9,000 AmSouth Bancorporation................................ $ 360,562
74,000 Colonial BancGroup, Inc. (The)**...................... 966,625
22,400 Compass Bancshares, Inc............................... 824,600
13,800 Cullen/Frost Bankers, Inc............................. 734,850
13,000 First American Corporation - Tennessee................ 536,250
17,000 Fulton Financial Corporation.......................... 350,625
10,000 Hibernia Corporation, Class A......................... 166,875
11,000 HUBCO, Inc............................................ 297,000
58,000 North Fork Bancorporation, Inc........................ 1,152,750
28,200 One Valley Bancorp, Inc............................... 912,975
58,500 Peoples Heritage Financial Group, Inc.**.............. 1,053,000
5,000 State Street Corporation.............................. 311,875
17,000 Summit Bancorp**...................................... 644,937
51,000 TCF Financial Corporation............................. 1,201,687
9,000 Texas Regional Bancshares, Inc., Class A.............. 204,750
16,000 Union Planters Corporation............................ 743,000
4,000 UnionBanCal Corporation............................... 370,000
54,000 UST Corp.............................................. 1,248,750
14,000 Vermont Financial Services Corp....................... 316,750
------------
12,397,861
------------
BANKS - MONEY CENTER -- 4.8%
22,500 Bank of New York Company, Inc. (The).................. 710,156
20,452 BankAmerica Corporation............................... 1,174,712
14,500 BankBoston Corporation................................ 533,781
------------
2,418,649
------------
BANKS - SUPER REGIONAL -- 14.2%
19,500 Bank One Corporation.................................. 953,062
6,000 Comerica Incorporated................................. 387,000
21,000 First Union Corporation............................... 1,218,000

<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
BANKS - SUPER REGIONAL (CONTINUED)
30,000 Fleet Financial Group, Inc............................ $ 1,198,125
36,000 KeyCorp............................................... 1,091,250
5,500 Mellon Bank Corporation............................... 330,687
20,000 PNC Bank Corp......................................... 1,000,000
7,000 SunTrust Banks, Inc................................... 487,812
1,500 Wells Fargo & Company................................. 555,000
------------
7,220,936
------------
FINANCIAL SERVICES -- 6.0%
3,000 Citigroup Inc......................................... 141,188
17,500 Fannie Mae............................................ 1,239,219
24,000 MBNA Corporation...................................... 547,500
3,000 Providian Financial Corporation....................... 238,125
22,000 SLM Holding Corporation**............................. 881,375
------------
3,047,407
------------
INSURANCE -- 1.2%
8,000 MGIC Investment Corporation........................... 312,000
6,000 PMI Group, Inc. (The)................................. 302,625
------------
614,625
------------
INSURANCE - LIFE/HEALTH -- 1.6%
8,000 AFLAC Incorporated.................................... 305,000
11,000 Hartford Life, Inc., Class A.......................... 508,750
------------
813,750
------------
INSURANCE - MULTI-LINE -- 1.4%
14,000 Allmerica Financial Corporation....................... 700,000
------------
SAVINGS & LOANS - SAVINGS BANKS -- 24.9%
29,500 Astoria Financial Corporation......................... 1,268,500
38,000 Charter One Financial, Inc............................ 1,042,625
28,000 Commercial Federal Corporation........................ 635,250
6,000 Downey Financial Corp................................. 140,625
42,500 FirstFed Financial Corp.*............................. 695,938
39,000 Golden State Bancorp Inc.*............................ 748,313
</TABLE>

The accompanying notes are an integral part of the financial statements.

11
<PAGE>
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----------------

FBR FINANCIAL SERVICES FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 21.6%
REPURCHASE AGREEMENT -- 21.6%
10,976,515 Bear, Stearns & Co. Inc. (Agreement dated 10/30/98 to
be repurchased at $10,981,354) 5.29%, 11/02/98 (Note
6) (Cost $10,976,515)............................... 10,976,515
------------
Total Investments -- 100.2% (Cost $53,017,620)........ 50,837,877
Liabilities in Excess
of Other Assets -- (0.2)%........................... (117,707)
------------
Net Assets -- 100.0%.................................. $ 50,720,170
------------
------------
</TABLE>

- ------------------

* Non-income producing.

** Security or a portion thereof is out on loan.

The accompanying notes are an integral part of the financial statements.

12
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----------------

FBR SMALL CAP FINANCIAL FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 90.2%
BANKS - COMMERCIAL -- 3.1%
5,000 Bank of Commerce/San Diego........................... $ 62,187
18,100 Granite State Bankshares, Inc........................ 371,050
56,000 UST Corp............................................. 1,295,000
-------------
1,728,237
-------------
SAVINGS & LOANS - SAVINGS BANKS - CENTRAL -- 13.5%
50,000 Cameron Financial Corporation........................ 768,750
55,700 FFY Financial Corporation............................ 1,726,700
58,900 Hallmark Capital Corp.*.............................. 728,887
71,000 Jacksonville Bancorp, Inc............................ 1,047,250
19,800 Local Financial Corporation*/**...................... 179,437
107,900 Logansport Financial Corp............................ 1,537,575
76,900 North Central Bancshares, Inc........................ 1,297,688
11,400 Peoples Bancorp/Auburn, IN........................... 230,138
-------------
7,516,425
-------------
SAVINGS & LOANS - SAVINGS BANKS -
EAST -- 52.6%
13,200 Abington Bancorp, Inc................................ 194,700
46,000 Andover Bancorp, Inc.**.............................. 1,437,500
55,800 Bay State Bancorp, Inc.*............................. 1,311,300
63,500 BostonFed Bancorp, Inc............................... 1,146,969
78,100 Brookline Bancorp, Inc............................... 1,015,300
52,000 Catskill Financial Corporation....................... 724,750
101,400 First Bell Bancorp, Inc.............................. 1,470,300
57,000 First Federal Savings & Loan Association of East
Hartford........................................... 1,425,000
57,000 First Keystone Financial, Inc........................ 855,000
60,000 First Source Bancorp Inc............................. 517,500
30,000 Haven Bancorp, Inc................................... 416,250
98,400 Hingham Institution for Savings...................... 1,642,050
29,000 Hudson River Bancorp, Inc.*.......................... 299,063
98,000 Independence Community Bank Corp..................... 1,341,375
38,900 KSB Bancorp, Inc..................................... 517,856

<CAPTION>
- ----------------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - SAVINGS BANKS -
EAST (CONTINUED)
5,000 MASSBANK Corp........................................ $ 182,500
31,000 MECH Financial, Inc.................................. 751,750
61,800 Medford Bancorp, Inc................................. 957,900
72,600 Northeast Pennsylvania Financial Corp.*.............. 825,825
99,000 Ocean Financial Corp................................. 1,435,500
11,800 Pamrapo Bancorp, Inc................................. 280,250
63,250 Parkvale Financial Corporation....................... 1,328,250
133,700 PennFed Financial Services, Inc...................... 1,846,731
35,000 Peoples Bancorp, Inc................................. 354,375
127,000 Richmond County Financial Corp.**.................... 1,857,375
98,000 Staten Island Bancorp, Inc........................... 1,782,375
63,000 Statewide Financial Corp............................. 976,500
73,000 Warwick Community Bancorp, Inc....................... 930,750
53,100 Wyman Park Bancorporation, Inc.*..................... 584,100
53,900 Yonkers Financial Corporation........................ 764,706
-------------
29,173,800
-------------
SAVINGS & LOANS - SAVINGS BANKS -
SOUTH -- 3.6%
36,800 HCB Bancshares, Inc.**............................... 340,400
6,000 Heritage Bancorp, Inc./South Carolina................ 107,250
60,000 Pocahontas Bancorp, Inc.............................. 528,750
46,800 Texarkana First Financial Corporation................ 1,017,900
-------------
1,994,300
-------------
SAVINGS & LOANS - SAVINGS BANKS -
WEST -- 17.4%
77,600 FirstFed Financial Corp.*............................ 1,270,700
89,500 ITLA Capital Corporation*............................ 1,364,875
50,600 Klamath First Bancorp, Inc........................... 923,450
70,500 Oregon Trail Financial Corp.......................... 942,938
</TABLE>

The accompanying notes are an integral part of the financial statements.

13
<PAGE>
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----------------

FBR SMALL CAP FINANCIAL FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

- ------------------

* Non-income producing.

** Security or a portion thereof is out on loan.

The accompanying notes are an integral part of the financial statements.

14
<PAGE>
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----------------

FBR SMALL CAP VALUE FUND

PORTFOLIO OF INVESTMENTS

NUMBER OF
CONTRACTS
- ----------
<C> <S> <C>
CALL OPTION PURCHASED -- 1.5%
BANKS - SUPER REGIONAL -- 1.5%
40 Wells Fargo & Company, expiring 01/15/99 @ $320.00*
(Cost $81,808)..................................... 232,000
-------------
WARRANTS -- 0.3%
BANKS - MONEY CENTER -- 0.3%
200 Bank of New York Company, Inc. (The), expiring
11/29/98 @ $15.50* (Cost $20,170).................. 38,400
-------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

15
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----------------

FBR SMALL CAP VALUE FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

OCTOBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 9.3%
REPURCHASE AGREEMENT -- 9.3%
1,461,303 Bear, Stearns & Co. Inc. (Agreement dated 10/30/98 to
be repurchased at $1,461,947) 5.29%, 11/02/98 (Note
6)
(Cost $1,461,303).................................. $ 1,461,303
-------------
Total Investments -- 99.1%
(Cost $17,814,955)................................. 15,503,193
Other Assets in Excess of Liabilities -- 0.9%........ 142,329
-------------
Net Assets -- 100.0%................................. $ 15,645,522
-------------
-------------
</TABLE>

- ------------------

* Non-income producing.

** Security or a portion thereof is out on loan.

ADR American Depositary Receipts.

The accompanying notes are an integral part of the financial statements.

16
<PAGE>
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----------------

FBR REALTY GROWTH FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 89.4%
REAL ESTATE INVESTMENT TRUSTS -- 71.2%
APARTMENTS -- 1.1%
1,000 Boddie-Noell Properties, Inc........................... $ 11,500
1,276 Cornerstone Realty Income Trust, Inc.**................ 13,717
------------
25,217
------------
HOTELS -- 23.5%
2,000 Equity Inns, Inc....................................... 21,000
3,000 FelCor Suite Hotels, Inc............................... 70,687
2,763 Hospitality Properties Trust........................... 73,047
7,600 Humphrey Hospitality Trust, Inc........................ 73,150
19,900 Innsuites Hospitality Trust............................ 75,869
6,000 Jameson Inns, Inc...................................... 58,500
7,729 Patriot American Hospitality, Inc...................... 68,595
1,125 RFS Hotel Investors, Inc............................... 14,625
741 Starwood Hotels & Resorts.............................. 20,980
7,000 Winston Hotels, Inc.................................... 59,938
------------
536,391
------------
INDUSTRIAL/WAREHOUSE -- 6.6%
1,000 American Industrial Properties REIT.................... 10,562
3,100 EastGroup Properties, Inc.............................. 59,094
279 First Industrial Realty Trust, Inc..................... 7,149
67,742 Meridian Point Realty Trust '83*....................... 42,339
1,618 Pacific Gulf Properties, Inc........................... 32,057
------------
151,201
------------
MEDICAL -- 3.0%
670 American Health Properties, Inc........................ 14,907
230 Health Care Property Investors, Inc.................... 7,734
1,000 Healthcare Realty Trust, Inc........................... 23,437

<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL (CONTINUED)
830 HRPT Properties Trust.................................. $ 13,228
400 Nationwide Health Properties, Inc...................... 9,225
------------
68,531
------------
MIXED -- 8.3%
1,000 Crescent Real Estate Equities Company.................. 25,062
12,900 First Union Real Estate Investments.................... 74,981
5,500 Meditrust Companies.................................... 89,375
------------
189,418
------------
MORTGAGE -- 12.5%
6,000 Annaly Mortgage Management Inc......................... 45,375
5,000 Apex Mortgage Capital, Inc............................. 46,875
11,700 BRT Realty Trust*...................................... 68,737
17,932 Capstead Mortgage Corporation.......................... 56,037
4,295 CRIIMI MAE, Inc.**..................................... 5,906
4,000 Hanover Capital Mortgage Holdings, Inc.**.............. 16,000
60,000 Resort Income Investors, Inc.*......................... 31,200
2,000 Thornburg Mortgage Asset Corporation**................. 16,375
------------
286,505
------------
OFFICES -- 0.8%
1,128 Cornerstone Properties, Inc............................ 17,484
------------
RETAIL/MALL -- 2.3%
66,300 EQK Realty Investors I*................................ 53,869
------------
RETAIL/OUTLET -- 2.0%
400 Chelsea GCA Realty, Inc................................ 13,750
3,277 Prime Retail, Inc...................................... 31,746
------------
45,496
------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

17
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----------------

FBR REALTY GROWTH FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

OCTOBER 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
RETAIL/STRIP -- 5.2%
11,900 Acadia Realty Trust*................................... $ 66,194
2,500 JP Realty, Inc......................................... 52,344
------------
118,538
------------
SELF STORAGE -- 3.0%
210 Shurgard Storage Centers, Inc.......................... 5,657
1,700 Sovran Self Storage, Inc............................... 43,563
610 Storage USA, Inc.**.................................... 18,567
------------
67,787
------------
SPECIALTY -- 2.9%
4,000 Entertainment Properties Trust......................... 66,500
------------
Total Real Estate Investment Trusts (Cost
$1,924,017).......................................... 1,626,937
------------
OTHER REAL ESTATE RELATED -- 18.2%
COMMERCIAL SERVICES -- 2.4%
4,800 Cendant Corporation*................................... 54,900
------------
HOTELS & MOTELS -- 3.4%
24,300 Host Funding, Inc...................................... 50,119
2,000 Host Marriott
Corporation*/**...................................... 29,000
------------
79,119
------------
REAL ESTATE DEVELOPMENT -- 7.8%
4,600 Catellus Development Corporation*...................... 63,250
7,400 Semele Group, Inc...................................... 29,600
1,300 The St. Joe Company.................................... 31,119
9,600 Western Water Company.................................. 54,000
------------
177,969
------------
<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT/MANAGEMENT -- 4.6%
53,500 Banyan Hotel Investment Fund*/**....................... $ 38,453
22,600 Liberte Investors, Inc................................. 66,387
------------
104,840
------------
Total Other Real Estate Related (Cost $552,824)........ 416,828
------------
Total Common Stocks
(Cost $2,476,841).................................... 2,043,765
------------
<CAPTION>

PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 8.9%
REPURCHASE AGREEMENT -- 8.9%
203,330 Bear, Stearns & Co. Inc. (Agreement dated 10/30/98 to
be repurchased at $203,420) 5.29%, 11/02/98 (Note
6)(Cost $203,330).................................... 203,330
------------
Total Investments -- 98.3%
(Cost $2,680,171).................................... 2,247,095
Other Assets in Excess of Liabilities -- 1.7%.......... 39,558
------------
Net Assets -- 100.0%................................... $ 2,286,653
------------
------------
</TABLE>

- ------------------

* Non-income producing.

** Security or a portion thereof is out on loan.

The accompanying notes are an integral part of the financial statements.

18
<PAGE>
[FBR LOGO]
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----------------

STATEMENT OF ASSETS AND LIABILITIES

OCTOBER 31, 1998

<TABLE>
<CAPTION>
FBR FBR FBR FBR
FINANCIAL SMALL CAP SMALL CAP REALTY
SERVICES FUND FINANCIAL FUND VALUE FUND GROWTH FUND
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (Cost -- $53,017,620, $64,975,378,
$17,814,955, $2,680,171, respectively)................... $50,837,877 $ 55,077,390 $ 15,503,193 $ 2,247,095
Cash...................................................... 202,668 28,451 4,513 --
Collateral received for securities loaned (Note 5)........ 2,176,847 1,022,054 2,578,882 114,520
Receivable for investments sold........................... 784,085 742,513 158,232 22,766
Dividends and interest receivable......................... 118,177 68,930 3,882 15,312
Receivable for Fund shares sold........................... 77,082 88,688 19,875 2,503
Receivable from investment adviser........................ 21,587 22,691 16,267 2,609
Deferred organization costs and other assets.............. 36,193 45,804 37,732 13,239
------------- -------------- ------------ -------------
Total assets............................................ 54,254,516 57,096,521 18,322,576 2,418,044
------------- -------------- ------------ -------------
LIABILITIES
Payable upon return of securities loaned (Note 5)......... 2,176,847 1,022,054 2,578,882 114,520
Payable for investments purchased......................... 1,234,162 324,810 -- 7,540
Payable for Fund shares redeemed.......................... 5,396 108,102 36,840 --
Distribution and service fees payable..................... 20,468 46,854 6,106 719
Accrued expenses and other liabilities.................... 97,473 119,386 55,226 8,612
------------- -------------- ------------ -------------
Total liabilities....................................... 3,534,346 1,621,206 2,677,054 131,391
------------- -------------- ------------ -------------
NET ASSETS
Capital stock (unlimited number of shares authorized,
with no par value)....................................... 49,361,748 58,934,775 17,523,940 2,995,576
Undistributed net investment income....................... 291,763 230,598 -- 20,080
Accumulated net realized gain/(loss) from investments and
options transactions, if any............................. 3,246,402 6,207,930 433,344 (295,927)
Net unrealized depreciation on investments and options
transactions, if any..................................... (2,179,743) (9,897,988) (2,311,762) (433,076)
------------- -------------- ------------ -------------
Net assets applicable to shares outstanding............. $50,720,170 $ 55,475,315 $ 15,645,522 $ 2,286,653
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
CLASS A
Net assets................................................ $50,342,410 $ 53,439,016 $ 15,250,267 $ 2,286,653
------------- -------------- ------------ -------------
Shares outstanding........................................ 2,971,401 3,421,970 1,039,763 236,339
------------- -------------- ------------ -------------
Net asset value per share................................. $16.94 $15.62 $14.67 $9.68
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
Maximum offering price per share (net asset value plus
sales charge of 5.50%* of the offering price)............ $17.93 $16.53 $15.52 $10.24
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
CLASS B
$ 260,018 $ 1,780,210 $ 347,141 --
Net assets................................................
------------- -------------- ------------ -------------
Shares outstanding........................................ 15,414 114,327 23,751 --
------------- -------------- ------------ -------------
Net asset value and offering price per share**............ $16.87 $15.57 $14.62 --
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
CLASS C
$ 117,742 $ 256,089 $ 48,114 --
Net assets................................................
------------- -------------- ------------ -------------
Shares outstanding........................................ 6,969 16,485 3,292 --
------------- -------------- ------------ -------------
Net asset value and offering price per share**............ $16.90 $15.53 $14.61 --
------------- -------------- ------------ -------------
------------- -------------- ------------ -------------
</TABLE>

- ------------------
* On investments of $50,000 or more, the offering price is reduced.

** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.

The accompanying notes are an integral part of the financial statements.

19
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----------------

STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998

<TABLE>
<CAPTION>
FBR FBR FBR FBR
FINANCIAL SMALL CAP SMALL CAP REALTY
SERVICES FUND FINANCIAL FUND VALUE FUND GROWTH FUND*
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 752,503 $ 1,177,494 $ 74,516 $ 71,624
Interest.................................................. 373,903 423,623 57,207 1,242
------------- -------------- ------------- -------------
1,126,406 1,601,117 131,723 72,866
------------- -------------- ------------- -------------
EXPENSES
Advisory fees............................................. 447,904 730,310 142,388 14,751
Distribution and service fees - Class A................... 124,181 201,091 39,140 4,134
Distribution and service fees - Class B................... 552 5,939 1,481 --
Distribution and service fees - Class C................... 395 1,157 168 --
Transfer agent fees and expenses.......................... 95,394 133,487 53,496 5,600
Administration and accounting fees........................ 84,373 129,746 27,611 16,164
Audit and legal fees...................................... 54,728 92,808 19,568 4,698
Federal and state registration fees....................... 40,370 41,411 30,963 10,304
Custodian fees and expenses............................... 34,890 42,679 9,914 6,688
Printing.................................................. 21,185 32,135 5,854 1,131
Insurance................................................. 12,156 11,684 12,088 --
Trustees' fees and expenses............................... 8,681 10,981 9,637 1,129
Amortization of organization expenses..................... 3,043 3,044 3,043 12,253
Other..................................................... 2,464 2,582 2,214 1,998
------------- -------------- ------------- -------------
Total expenses before waivers and related
reimbursements......................................... 930,316 1,439,054 357,565 78,850
Less: waivers and related reimbursements................ (108,464) (113,536) (95,305) (49,387)
------------- -------------- ------------- -------------
Total expenses after waivers and related
reimbursements......................................... 821,852 1,325,518 262,260 29,463
------------- -------------- ------------- -------------
Net investment income/(loss).............................. 304,554 275,599 (130,537) 43,403
------------- -------------- ------------- -------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND OPTIONS
TRANSACTIONS, IF ANY
Net realized gain/(loss) from:
Investments............................................. 3,267,813 6,209,896 570,922 (233,287)
Options transactions.................................... -- -- (6,870) --
Net change in unrealized appreciation on:
Investments............................................. (5,133,972) (14,197,474) (3,521,599) (549,393)
Options transactions.................................... -- -- 127,834 --
------------- -------------- ------------- -------------
Net realized and unrealized loss on investments and
options transactions, if any............................. (1,866,159) (7,987,578) (2,829,713) (782,680)
------------- -------------- ------------- -------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (1,561,605) $ (7,711,979) $ (2,960,250) $ (739,277)
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>

- ------------------

* Reported amounts include the results of operations of the FBR Realty Growth
Fund for the period April 1, 1998 through October 31, 1998. Prior to September
18, 1998, the FBR Realty Growth Fund operated as the GrandView-SM- Realty
Growth Fund, which had a fiscal year end of March 31, 1998.

The accompanying notes are an integral part of the financial statements.

20
<PAGE>
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----------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FBR FINANCIAL SERVICES FUND
-------------------------------
FOR THE PERIOD
FOR THE FISCAL JANUARY 3,
YEAR 1997*
ENDED THROUGH
OCTOBER 31, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).............................. $ 304,554 $ 57,764
Net realized gain/(loss) from investments and options
transactions, if any..................................... 3,267,813 290,507
Net change in unrealized appreciation on investments and
options transactions, if any............................. (5,133,972) 2,954,229
-------------- --------------
Net increase/(decrease) in net assets resulting from
operations............................................... (1,561,605) 3,302,500
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... (70,555) --
Net realized capital gains
Class A shares.......................................... (311,918) --
-------------- --------------
Total dividends and distributions to shareholders......... (382,473) --
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from the sale of shares...................... 50,376,443 24,819,794
Cost of shares repurchased................................ (22,066,182) (4,170,199)
Shares issued in reinvestment of dividends................ 368,559 --
-------------- --------------
Increase in net assets derived from capital share
transactions............................................. 28,678,820 20,649,595
-------------- --------------
Total increase/(decrease) in net assets................... 26,734,742 23,952,095
NET ASSETS
Beginning of period....................................... 23,985,428 33,333
-------------- --------------
End of period............................................. $50,720,170(1) $23,985,428(2)
-------------- --------------
-------------- --------------
</TABLE>

- ------------------

* Commencement of investment operations.
** Reported amounts include the results of operations of the FBR Realty Growth
Fund for the period April 1, 1998 through October 31, 1998. Prior to
September 18, 1998, the FBR Realty Growth Fund operated as the
GrandView-SM- Realty Growth Fund, which had a fiscal year end of March 31,
1998. Net proceeds from the sale of shares for FBR Realty Growth Fund
includes $814,924, from the conversion of GrandView-SM-
S&P-Registered Trademark- REIT Index Fund into the FBR Realty Growth Fund
on September 18, 1998.
(1) Includes undistributed net investment income of $291,763.
(2) Includes undistributed net investment income of $57,764.
(3) Includes undistributed net investment income of $230,598.
(4) Includes undistributed net investment income of $55,672.
(5) Includes undistributed net investment income of $20,080.

The accompanying notes are an integral part of the financial statements.

22
<PAGE>
<TABLE>
<CAPTION>
FBR SMALL CAP FINANCIAL FUND FBR SMALL CAP VALUE FUND
------------------------------- -------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE FISCAL JANUARY 3, FOR THE FISCAL JANUARY 3,
YEAR 1997* YEAR 1997*
ENDED THROUGH ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).............................. $ 275,599 $ 55,672 $ (130,537) $ (22,318)
Net realized gain/(loss) from investments and options
transactions, if any..................................... 6,209,896 468,570 564,052 271,760
Net change in unrealized appreciation on investments and
options transactions, if any............................. (14,197,474) 4,299,486 (3,393,765) 1,082,003
-------------- -------------- -------------- --------------
Net increase/(decrease) in net assets resulting from
operations............................................... (7,711,979) 4,823,728 (2,960,250) 1,331,445
-------------- -------------- -------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... (100,673) -- -- --
Net realized capital gains
Class A shares.......................................... (470,536) -- (249,613) --
-------------- -------------- -------------- --------------
Total dividends and distributions to shareholders......... (571,209) -- (249,613) --
-------------- -------------- -------------- --------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from the sale of shares...................... 105,428,314 41,558,998 18,358,863 7,100,953
Cost of shares repurchased................................ (85,579,803) (3,054,221) (8,020,115) (197,214)
Shares issued in reinvestment of dividends................ 548,154 -- 248,119 --
-------------- -------------- -------------- --------------
Increase in net assets derived from capital share
transactions............................................. 20,396,665 38,504,777 10,586,867 6,903,739
-------------- -------------- -------------- --------------
Total increase/(decrease) in net assets................... 12,113,477 43,328,505 7,377,004 8,235,184
NET ASSETS
Beginning of period....................................... 43,361,838 33,333 8,268,518 33,334
-------------- -------------- -------------- --------------
End of period............................................. $55,475,315(3) $43,361,838(4) $15,645,522 $ 8,268,518
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------

<CAPTION>
FBR REALTY GRANDVIEW-SM-
GROWTH FUND** REALTY
-------------- GROWTH FUND**
FOR THE PERIOD --------------
APRIL 1, 1998 FOR THE PERIOD
THROUGH APRIL 1, 1997
OCTOBER 31, THROUGH
1998 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).............................. $ 43,403 $ 9,918
Net realized gain/(loss) from investments and options
transactions, if any..................................... (233,287) 327,769
Net change in unrealized appreciation on investments and
options transactions, if any............................. (549,393) 25,711
-------------- --------------
Net increase/(decrease) in net assets resulting from
operations............................................... (739,277) 363,398
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares.......................................... (23,323) (9,918)
Net realized capital gains
Class A shares.......................................... (232,383) (158,026)
-------------- --------------
Total dividends and distributions to shareholders......... (255,706) (167,944)
-------------- --------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from the sale of shares...................... 1,769,579 1,463,197
Cost of shares repurchased................................ (1,082,426) (594,012)
Shares issued in reinvestment of dividends................ 218,262 153,559
-------------- --------------
Increase in net assets derived from capital share
transactions............................................. 905,415 1,022,744
-------------- --------------
Total increase/(decrease) in net assets................... (89,568) 1,218,198
NET ASSETS
Beginning of period....................................... 2,376,221 1,158,023
-------------- --------------
End of period............................................. $ 2,286,653(5) $ 2,376,221
-------------- --------------
-------------- --------------
</TABLE>

- ------------------

The accompanying notes are an integral part of the financial statements.

23
<PAGE>
[FBR LOGO]
FBR Family of Funds
----------------

FINANCIAL HIGHLIGHTS

- ---------------------------------------------------------------------------
Contained below is per share operating performance data for each share
outstanding, total investment returns, ratios to average net assets and other
supplemental data for each period. This information has been derived from
information provided in the financial statements.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FBR FINANCIAL SERVICES FUND
-----------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
FISCAL PERIOD PERIOD PERIOD
YEAR APRIL 24, MAY 8, JANUARY 3,
ENDED 1998** 1998** 1997*
OCTOBER THROUGH THROUGH THROUGH
31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1998 1998 1997
-------- ------------ ------------ ------------
CLASS A CLASS B CLASS C CLASS A
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE***
Net asset value,
beginning of
period.............. $ 16.03 $ 20.12 $ 19.39 $ 12.00
-------- ------------ ------------ ------------
Net investment
income/(loss)(1).... 0.10 0.01 0.01 0.04
Net realized and
unrealized
gain/(loss) on
investments and
options
transactions, if
any(2).............. 1.04 (3.26) (2.50) 3.99
-------- ------------ ------------ ------------
Net
increase/(decrease)
in net assets
resulting from
operations.......... 1.14 (3.25) (2.49) 4.03
-------- ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income.............. (0.04) -- -- --
Net realized capital
gains............... (0.19) -- -- --
Tax return of
capital............. -- -- -- --
-------- ------------ ------------ ------------
Total dividends and
distributions to
shareholders........ (0.23) -- -- --
-------- ------------ ------------ ------------
Net asset value, end
of period........... $ 16.94 $ 16.87 $ 16.90 $ 16.03
-------- ------------ ------------ ------------
-------- ------------ ------------ ------------
Total investment
return(3)........... 7.12% (16.15)%(5) (12.84)%(5) 33.58%
-------- ------------ ------------ ------------
-------- ------------ ------------ ------------
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000's
omitted)............ $50,342 $ 260 $ 118 $23,985
Ratio of expenses to
average net
assets(1)........... 1.65% 2.40%(4) 2.40%(4) 1.65%(4)
Ratio of net
investment
income/(loss) to
average net
assets(1)........... 0.61% 0.33%(4)(5) 0.26%(4)(5) 0.57%(4)
Increase/(decrease)
reflected in above
expense ratios and
net investment
income/(loss) due to
waivers and related
reimbursements...... 0.22% 0.15%(4)(5) 0.14%(4)(5) 1.42%(4)
Portfolio turnover
rate................ 105.58% 105.58% 105.58% 49.68%
</TABLE>

- ----------------------------

* Commencement of investment operations.
** Commencement of initial public offering.
*** Calculated based on shares outstanding on the first and last day of the
respective periods, except for dividends and distributions, if any, which
are based on actual shares outstanding on the respective dates of
distributions.
(1) Reflects waivers and related reimbursements.
(2) The amounts shown for a share outstanding throughout the respective periods
is not in accordance with the changes in the aggregate gains and losses in
investments during the respective periods because of the timing of sales
and repurchases of Fund shares in relation to fluctuating net asset value
during the respective periods.
(3) Total investment return does not consider the effects of sales charges or
contingent deferred sales charges. Total investment return is calculated
assuming a purchase of shares on the first day and a sale of shares on the
last day of each period reported and will include reinvestments of
dividends and distributions, if any. FBR Realty Growth Fund's total
investment return is calculated based on a one year period ended October
31, 1998. Total investment return is not annualized.
(4) Annualized.
(5) The total investment return and ratios for a class of shares are not
necessarily comparable to those of any other outstanding class of shares,
due to timing differences in the commencement of the initial public
offerings.
(6) Reported amounts include the results of operations of the FBR Realty Growth
Fund for the period April 1, 1998 through October 31, 1998. Prior to
September 18, 1998, the FBR Realty Growth Fund operated as the
GrandView-SM- Realty Growth Fund, which had a fiscal year end of March 31,
1998.
The accompanying notes are an integral part of the financial statements.

24
<PAGE>
<TABLE>
<CAPTION>
FBR SMALL CAP VALUE FUND
FBR SMALL CAP FINANCIAL FUND ------------------------------------------------
---------------------------------------------- FOR THE
FOR THE PERIOD
FOR THE FOR THE FOR THE PERIOD FOR THE FOR THE FOR THE JANUARY
FISCAL PERIOD PERIOD JANUARY 3, FISCAL PERIOD PERIOD 3,
YEAR APRIL 21, APRIL 24, 1997* YEAR APRIL 23, MAY 26, 1997*
ENDED 1998** 1998** THROUGH ENDED 1998** 1998** THROUGH
OCTOBER THROUGH THROUGH OCTOBER OCTOBER THROUGH THROUGH OCTOBER
31, OCTOBER 31, OCTOBER 31, 31, 31, OCTOBER 31, OCTOBER 31, 31,
1998 1998 1998 1997 1998 1998 1998 1997
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
CLASS A CLASS B CLASS C CLASS A CLASS A CLASS B CLASS C CLASS A
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE***
Net asset value,
beginning of
period.............. $17.53 $20.39 $20.53 $12.00 $16.70 $18.74 $17.79 $12.00
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
Net investment
income/(loss)(1).... 0.08 (0.03) (0.04) 0.02 (0.08) (0.14) (0.11) (0.05)
Net realized and
unrealized
gain/(loss) on
investments and
options
transactions, if
any(2).............. (1.81) (4.79) (4.96) 5.51 (1.46) (3.98) (3.07) 4.75
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
Net
increase/(decrease)
in net assets
resulting from
operations.......... (1.73) (4.82) (5.00) 5.53 (1.54) (4.12) (3.18) 4.70
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income.............. (0.03) -- -- -- -- -- -- --
Net realized capital
gains............... (0.15) -- -- -- (0.49) -- -- --
Tax return of
capital............. -- -- -- -- -- -- -- --
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
Total dividends and
distributions to
shareholders........ (0.18) -- -- -- (0.49) -- -- --
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
Net asset value, end
of period........... $15.62 $15.57 $15.53 $17.53 $14.67 $14.62 $14.61 $16.70
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
Total investment
return(3)........... (9.99)% (23.64)%(5) (24.35)%(5) 46.08% (9.57)% (21.99)%(5) (17.88)%(5) 39.17%
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
------- ----------- ----------- ---------- --------- ----------- ----------- ---------
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000's
omitted)............ $53,439 $1,780 $ 256 $43,362 $15,250 $ 347 $ 48 $8,269
Ratio of expenses to
average net
assets(1)........... 1.63% 2.40%(4) 2.40%(4) 1.65%(4) 1.65% 2.40%(4) 2.40%(4) 1.65%(4)
Ratio of net
investment
income/(loss) to
average net
assets(1)........... 0.35% (0.49)%(4)(5) (0.57)%(4)(5) 0.57%(4) (0.81)% (2.27)%(4)(5) (2.16)%(4)(5) (0.79)%(4)
Increase/(decrease)
reflected in above
expense ratios and
net investment
income/(loss) due to
waivers and related
reimbursements...... 0.14% 0.26%(4)(5) 0.23%(4)(5) 1.43%(4) 0.60% 0.52%(4)(5) 0.58%(4)(5) 3.84%(4)
Portfolio turnover
rate................ 94.23% 94.23% 94.23% 35.41% 78.26% 78.26% 78.26% 42.59%

FBR REALTY
GROWTH
FUND(6) GRANDVIEW-SM- REALTY GROWTH FUND(6)
-----------
---------------------------------------
FOR THE FOR THE
PERIOD PERIOD
APRIL 1, FOR THE FISCAL YEARS JULY 3,
1998 ENDED MARCH 31, 1995*
THROUGH ---------------------- THROUGH
OCTOBER 31, MARCH 31,
1998 1998 1997 1996
----------- -------- -------- -----------
CLASS A CLASS A CLASS A CLASS A
----------- -------- -------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE***
Net asset value,
beginning of
period.............. $ 14.51 $ 12.69 $ 10.09 $ 10.00
----------- -------- -------- -----------
Net investment
income/(loss)(1).... 0.22 0.11 0.33 0.20
Net realized and
unrealized
gain/(loss) on
investments and
options
transactions, if
any(2).............. (3.57) 3.00 4.14 0.36
----------- -------- -------- -----------
Net
increase/(decrease)
in net assets
resulting from
operations.......... (3.35) 3.11 4.47 0.56
----------- -------- -------- -----------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment
income.............. (0.13) (0.11) (0.33) (0.20)
Net realized capital
gains............... (1.35) (1.18) (1.53) (0.22)
Tax return of
capital............. -- -- (0.01) (0.05)
----------- -------- -------- -----------
Total dividends and
distributions to
shareholders........ (1.48) (1.29) (1.87) (0.47)
----------- -------- -------- -----------
Net asset value, end
of period........... $ 9.68 $ 14.51 $ 12.69 $ 10.09
----------- -------- -------- -----------
----------- -------- -------- -----------
Total investment
return(3)........... (21.14)% 24.80% 45.12% 5.70%
----------- -------- -------- -----------
----------- -------- -------- -----------
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000's
omitted)............ $ 2,287 $ 2,376 $ 1,158 $ 182
Ratio of expenses to
average net
assets(1)........... 2.00%(4) 2.00% 1.89% 2.00%(4)
Ratio of net
investment
income/(loss) to
average net
assets(1)........... 2.98%(4) 0.59% 3.12% 3.62%(4)
Increase/(decrease)
reflected in above
expense ratios and
net investment
income/(loss) due to
waivers and related
reimbursements...... 3.41%(4) 3.68% 7.70% 29.34%(4)
Portfolio turnover
rate................ 136.24% 170.19% 197.90% 44.44%
</TABLE>

- ----------------------------

25
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The FBR Family of Funds (the "Trust") is an open-end management investment
company organized under the laws of the State of Delaware on April 30, 1996. The
Trust currently consists of five series which represent interests in one of the
following investment portfolios: FBR Financial Services Fund ("Financial
Services Fund"), FBR Small Cap Financial Fund ("Small Cap Financial Fund"), FBR
Small Cap Value Fund (formerly FBR Small Cap Growth/Value Fund) ("Small Cap
Value Fund"), FBR Realty Growth Fund ("Realty Growth Fund") (each a "Fund" and
collectively, the "Funds") and FBR Information Technologies Fund. Financial
Services Fund, Small Cap Financial Fund and Realty Growth Fund are diversified
portfolios and Small Cap Value Fund and FBR Information Technologies Fund are
non-diversified portfolios. Each Fund is treated as a separate entity for
certain matters under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and for other purposes, and a shareholder of one Fund
is not deemed to be a shareholder of any other Fund. Prior to April 18, 1998,
the Funds offered no-load shares, which have been re-designated as Class A
shares. As of the date hereof, the Funds offer three classes of shares which
have been designated as Class A, B and C shares (except for Realty Growth Fund's
Class C shares which are not being offered). Each class of each Fund has an
unlimited number of shares authorized with no par value. Financial Services
Fund, Small Cap Financial Fund and Small Cap Value Fund commenced investment
operations on January 3, 1997. Realty Growth Fund commenced investment
operations on September 21, 1998. As of October 31, 1998, Class B shares of the
Realty Growth Fund have not commenced their initial public offering. Currently,
shares of the FBR Information Technologies Fund are not being offered.

Investment operations of the Realty Growth Fund was constituted through an
Agreement and Plan of Reorganization (the "Reorganization Plan"), which included
the liquidation and termination of the GrandView-SM- Realty Growth Fund and the
GrandView-SM- S&P-Registered Trademark- REIT Index Fund (collectively, the
"GrandView Funds") following the transfer of all or substantially all of the
assets of the GrandView Funds. The Reorganization Plan provides for the
acquisition of all or substantially all of the assets of the GrandView Funds by
the Realty Growth Fund in exchange for shares of the Realty Growth Fund and the
assumption by the Realty Growth Fund of certain identified liabilities of the
GrandView Funds.

Such Reorganization Plan was consummated on September 21, 1998, with each
shareholder of the GrandView Funds receiving on such date that number of shares
of the Realty Growth Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of each GrandView Funds.
Shareholders in the GrandView Funds received Class A shares of the Realty Growth
Fund. The GrandView-SM- Realty Growth Fund's historical financial data is
presented as part of the Realty Growth Fund's financial statements, as the
objectives and adviser of the GrandView-SM- Realty Growth Fund continue under
the Realty Growth Fund.

ORGANIZATIONAL MATTERS -- Prior to commencing investment operations on January
3, 1997, the Financial Services Fund, Small Cap Financial Fund and Small Cap
Value Fund did not have any transactions other than those relating to
organizational matters and the sale of 2,777, 2,778 and 2,778 Class A shares of
beneficial interest, respectively, to Friedman, Billings, Ramsey & Co., Inc.
("FBR") on December 16, 1996. Prior to commencing investment operations on
September 21, 1998, the Realty Growth Fund did not have any transactions other
than those relating to organizational matters and the sale of 3 Class A shares
of beneficial interest to FBR Fund Advisers, Inc. (the "Adviser") on September
15, 1998. Costs of approximately $35,784, $35,784 and $35,785 which were
incurred by

26
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Financial Services Fund, Small Cap Financial Fund and Small Cap Value Fund,
respectively, in connection with the organization of its shares have been
deferred and are being amortized using the straight-line method over the period
of benefit not exceeding sixty months, beginning with the commencement of
investment operations of each Fund. In the event that FBR or any transferee of
FBR redeems any of its original shares in any such Funds prior to the end of the
sixty month period, the proceeds of the redemption payable in respect of such
shares shall be reduced by the pro rata share (based on the proportionate share
of the original shares redeemed to the total number of original shares
outstanding at the time of the redemption) of the unamortized deferred
organization expenses as of the date of such redemption. In the event that any
of such Funds are liquidated prior to the end of the sixty month period, FBR or
any transferee of FBR shall bear the unamortized deferred organization expenses.

MANAGEMENT ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
certain estimates and assumptions that may affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.

PORTFOLIO VALUATION -- The net asset value of each Fund is determined as of the
close of regular trading on the New York Stock Exchange (normally 4:00 p.m., New
York time) on each business day. Each Fund's securities are valued at the last
sale price on the securities exchange or national securities market on which
such securities primarily are traded. Securities not listed on an exchange or
national securities market, or securities in which there were no transactions,
are valued at the average of the most recent bid and asked prices, except in the
case of open short positions where the asked price is used for valuation
purposes. Bid price is used when no asked price is available. Short-term
investments are carried at amortized cost, which approximates value. Any
securities or other assets (of which there were none as of October 31, 1998) for
which recent market quotations are not readily available are valued at fair
value as determined in good faith by the Funds' Board of Trustees. Restricted
securities, as well as securities or other assets for which market quotations
are not readily available, or are not valued by a pricing service approved by
the Board of Trustees, are valued at fair value in good faith by the Board of
Trustees. The Board of Trustees will review the method of valuations on a
current basis. Expenses and fees, including the investment advisory fee and
distribution and service fee, are accrued daily and taken into account for the
purpose of determining the net asset value of each Fund's shares. Because of the
differences in operating expenses incurred by each class, the per share net
asset value of each class will differ.

OPTIONS -- Each Fund may buy and sell call and put options to hedge against
changes in net asset value or to attempt to realize a greater current return.
The risk associated with purchasing an option is that a Fund pays a premium
whether or not the option is exercised. Additionally, a Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by the premiums paid. The proceeds from
securities sold through the exercise of put options are decreased

27
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
by the premiums paid. Financial Services Fund, Small Cap Financial Fund and
Realty Growth Fund did not engage in options transactions during the fiscal year
ended October 31, 1998.

<TABLE>
<CAPTION>
CALL OPTIONS PURCHASED
------------------------------
SMALL CAP VALUE FUND CONTRACTS PREMIUMS
- -------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Outstanding, at beginning of period....................................... 110 $ 155,518
Options exercised......................................................... (50) (58,900)
Options sold.............................................................. (20) (14,810)
--- -----------
Outstanding, at end of period............................................. 40 $ 81,808
--- -----------
--- -----------
</TABLE>

REPURCHASE AGREEMENTS -- Each Fund has agreed to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreement"). The financial
institutions with whom each Fund enters into repurchase agreements are banks and
broker/dealers which the Adviser considers creditworthy pursuant to criteria
approved by the Trust's Board of Trustees. The seller under a repurchase
agreement will be required to maintain the value of the securities as
collateral, subject to the agreement at not less than the repurchase price plus
accrued interest. The Adviser marks to market daily the value of the collateral,
and, if necessary, requires the seller to maintain additional securities, to
ensure that the value is not less than the repurchase price. Default by or
bankruptcy of the seller would, however, expose each Fund to possible loss
because of adverse market action or delays in connection with the disposition of
the underlying securities.

INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Transactions are accounted for
on the trade date (the day in which the order to buy or sell is executed). The
cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes in determining
realized gains and losses on investments. Interest income is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. The Funds'
record distributions received from its investments in real estate investment
trusts that represent a tax return of capital as a reduction of the cost basis
of investments. Expenses not directly attributable to a specific Fund are
allocated based on relative net assets of each Fund. Each Fund's net investment
income (other than distribution and service fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day
(after adjusting for current capital share activity of the respective classes).

DIVIDENDS AND DISTRIBUTIONS -- Dividends from net investment income, if any,
will be declared and paid at least annually to shareholders of the Financial
Services Fund, Small Cap Financial Fund and Small Cap Value Fund, except for the
Realty Growth Fund which will be declared and paid quarterly to shareholders.
Distributions from net realized capital gains, if any, will be distributed at
least annually. Dividends and distributions to shareholders are recorded on the
ex-dividend date. Income and capital gain distributions are determined in
accordance with U.S. federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences are
considered either temporary or permanent in nature. To the extent differences
are permanent in nature, such amounts are reclassified within capital accounts
based on their U.S. federal tax-basis treatment; temporary differences do not
require reclassification.

28
<PAGE>
[FBR LOGO]
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

At October 31, 1998, the Small Cap Value Fund reclassified $130,537 of net
investment loss to accumulated net realized gain/(loss) from investments and
options transactions.

U.S. FEDERAL TAX STATUS -- No provision is made for U.S. federal income taxes as
it is each Fund's intention to qualify for and elect the tax treatment
applicable to regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended, and make the requisite distributions to its
shareholders which will be sufficient to relieve it from U.S. federal income and
excise taxes.

2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

FBR Fund Advisers, Inc. serves as each Fund's investment adviser. For its
advisory services, the Adviser is entitled to receive from the Financial
Services Fund, Small Cap Financial Fund and Small Cap Value Fund a monthly fee
equal to an annual rate of 0.90% of each Fund's average daily net assets,
computed daily and paid monthly. For its advisory services, the Adviser is
entitled to receive from the Realty Growth Fund a monthly fee equal to an annual
rate of 1.00% of such Fund's average daily net assets, computed daily and paid
monthly.

Prior to April 18, 1998, the Adviser had voluntarily undertaken to limit each
Fund's total operating expenses to the extent that such expenses exceeded 1.65%
of Financial Services Fund, Small Cap Financial Fund and Small Cap Value Fund's
average daily net assets. Effective April 18, 1998, the Adviser has voluntarily
undertaken to limit each Fund's total operating expenses to the extent that such
expenses exceed 1.65%, 2.40% and 2.40% of Financial Services Fund, Small Cap
Financial Fund and Small Cap Value Fund's Class A, B and C shares average daily
net assets, respectively, and 2.00% of Realty Growth Fund's Class A average
daily net assets (effective on September 21, 1998). As necessary, these
limitations were effected by waivers by the Adviser of its advisory fees and
reimbursements of expenses exceeding the advisory fee. For the fiscal year ended
October 31, 1998, investment advisory fees, waivers and reimbursements of
expenses, if any, were as follows:

<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY FEE ADVISORY EXPENSE
FUND FEES WAIVERS FEES REIMBURSEMENTS
- ---------------------------------------------- ----------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Financial Services Fund....................... $ 447,904 $ (108,464) $ 339,440 --
Small Cap Financial Fund...................... 730,310 (113,536) 616,774 --
Small Cap Value Fund.......................... 142,388 (92,160) 50,228 $ (3,145)
Realty Growth Fund*........................... 2,876 (2,876) -- (2,609)
</TABLE>

- ----------------

* GrandView Advisers, Inc. earned $11,875 in advisory fees, all of which was
waived.

The Funds will not pay the Adviser at a later time for any amounts it may waive
nor will the Funds reimburse the Adviser for any amounts which it may assume.

The Trust, on behalf of each of the Funds (except for Realty Growth Fund), had
entered into a Distribution Plan (the "Prior Plan") pursuant to Rule 12b-1 under
the Investment Company Act. Under the Prior Plan in effect for the period
November 1, 1997 through March 30, 1998, each Fund paid FBR a fee at an annual
rate of 0.25% of each Fund's average daily net assets which was accrued daily
and paid quarterly. Effective March 31, 1998, the Trust, on behalf of each
Fund's Class A shares (except for Realty Growth Fund, which was effective
September 21, 1998), has

29
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
adopted an amended and restated Distribution Plan (the "New Plan") pursuant to
Rule 12b-1 under the Investment Company Act. Upon adoption of the New Plan and
effective April 18, 1998, the Funds (except for Realty Growth Fund)
re-designated their outstanding no-load shares as Class A shares. Under the New
Plan, each Fund's Class A shares pays FBR and FBR Investment Services, Inc.
(collectively, the "Distributors") a fee at an annual rate of 0.25% of each
Fund's Class A shares average daily net assets. Effective March 31, 1998
(effective September 21, 1998 for Realty Growth Fund), the Trust, on behalf of
each Fund's Class B and C shares, has adopted a Service and Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act. Under the
Plan, each Fund pays the Distributors a distribution fee at an annual rate of
0.75% and a service fee at an annual rate of 0.25% of each Fund's Class B and C
shares average daily net assets. These fees paid to the Distributors under the
New Plan and the Plan are payable without regard to actual expenses incurred.
For the fiscal year ended October 31, 1998, the Distributors earned $124,891,
$206,413, $40,377 and $719 for the Financial Services Fund, Small Cap Financial
Fund, Small Cap Value Fund, and Realty Growth Fund, respectively, in
distribution fees. For the same period, the Distributors earned $237, $1,774 and
$412 for the Financial Services Fund, Small Cap Financial Fund and Small Cap
Value Fund, respectively, in service fees. The Distributors use the service fees
primarily to pay ongoing trail commissions to securities dealers (which may
include the Distributors themselves) and other financial organizations which
provide shareholders services for the Funds.

Effective April 18, 1998, the Distributors of the Funds (except for Realty
Growth Fund, which was effective September 21, 1998) collect the sales charge
imposed on sales of each Fund's Class A shares and re-allow a portion of such
charges to dealers through which the sales are made. The Distributors advanced
4.00% and 1.00% in sales commissions on the sale of Class B and C shares,
respectively, to dealers at the time of such sales.

For the fiscal year ended October 31, 1998, the Distributors have advised each
Fund that they retained $100,301, $152,212, $43,332, and $13,419 in front-end
sales charges resulting from sales of Class A shares of the Financial Services
Fund, Small Cap Financial Fund, Small Cap Value Fund and Realty Growth Fund,
respectively. From these fees, the Distributors paid such sales charges to
dealers which in turn paid commissions to salespersons. In addition, the
Distributors have advised each Fund that during the fiscal year ended October
31, 1998, it received $703 and $2,345 from the Small Cap Financial Fund and
Small Cap Value Fund, respectively, in contingent deferred sales charges
("CDSC") upon certain redemptions by Class B shareholders, and $89, $363 and $85
from the Financial Services Fund, Small Cap Financial Fund and Small Cap Value
Fund, respectively, in CDSC upon certain redemptions by Class C shareholders.

INFORMATION RELEVANT TO THE RELATED PARTIES OF THE GRANDVIEW-SM- REALTY GROWTH
FUND -- Pursuant to an investment advisory agreement, GrandView Advisers, Inc.
(the "Previous Adviser") served as the investment adviser to the GrandView-SM-
Realty Growth Fund. As compensation for its services, the Previous Adviser
received a fee at the annual rate of 1.00% of the GrandView-SM- Realty Growth
Fund's average daily net assets.

The Previous Adviser voluntarily waived all or a portion of its fee and
reimbursed expenses of the GrandView-SM- Realty Growth Fund to limit total Fund
operating expenses to 2.00% of the average daily net assets. The Previous
Adviser reimbursed $29,820 in expenses to the GrandView-SM- Realty Growth Fund.

30
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FBR FAMILY OF FUNDS
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The GrandView-SM- Realty Growth Fund's administrator, transfer agent and
distributor were The Nottingham Company, NC Shareholder Services, LLC and
Capital Investment Group, Inc., respectively, prior to its reorganization into
the Realty Growth Fund.

The GrandView-SM- Realty Growth Fund had a distribution plan pursuant to Rule
12b-1 of the Investment Company Act, for which the GrandView-SM- Realty Growth
Fund paid Capital Investment Group, Inc. a fee at an annual rate of 0.25% of
such Fund's average daily net assets. Capital Investment Group, Inc. earned
$3,415 in distribution fees for the GrandView-SM- Realty Growth Fund, of which
it waived $2,207.

3. INVESTMENT IN SECURITIES AND OPTIONS

For U.S. federal income tax purposes, the costs of securities and options owned
at October 31, 1998, were $53,457,753, $65,214,177, $17,845,814 and $2,819,983
for Financial Services Fund, Small Cap Financial Fund, Small Cap Value Fund and
Realty Growth Fund, respectively. Accordingly, the net unrealized depreciation
on investments and options transactions, if any, were as follows:

<TABLE>
<CAPTION>
FUND APPRECIATION DEPRECIATION NET DEPRECIATION
- --------------------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Financial Services Fund.................................. $1,030,408 $ (3,650,284) $ (2,619,876)
Small Cap Financial Fund................................. 51,647 (10,188,434) (10,136,787)
Small Cap Value Fund..................................... 1,281,071 (3,623,692) (2,342,621)
Realty Growth Fund....................................... 18,180 (591,068) (572,888)
</TABLE>

For the fiscal year ended October 31, 1998, aggregate purchases and sales of
investment securities and options transactions, if any, (excluding short-term
investments) were as follows:

<TABLE>
<CAPTION>
FUND PURCHASES SALES
- --------------------------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
Financial Services Fund.................................. $ 63,297,752 $44,545,896
Small Cap Financial Fund................................. 86,581,973 67,321,644
Small Cap Value Fund..................................... 20,300,944 11,511,861
Realty Growth Fund*...................................... 3,249,668 3,444,018
</TABLE>

- ----------------

* Reported amounts include the results of the Realty Growth Fund for the
period April 1, 1998 through October 31, 1998. Prior to September 18, 1998,
the Realty Growth Fund operated as the GrandView-SM- Realty Growth Fund,
which has a fiscal year end of March 31, 1998.

4. CAPITAL SHARE TRANSACTIONS

Prior to April 18, 1998, the Funds (except for the Realty Growth Fund) offered
only no-load shares, which has been re-designated as Class A shares. As of the
date hereof, the Funds offered three classes of shares, which have been
designated as Class A, B and C shares (except for Realty Growth Fund's Class C
shares which are not being offered). As of October 31, 1998 Class B shares of
the Realty Growth Fund have not commenced their initial public offering. Class A
shares of each Fund are sold with a front-end sales charge of up to 5.50%. Class
B shares of each Fund are sold

31
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
with a CDSC of up to 5.00% within six years of purchase. Class C shares of each
Fund are sold with a CDSC of 1.00% within the first year of purchase.

As of October 31, 1998 each class of each Fund has an unlimited number of shares
authorized with no par value, of which FBR owned 2,777, 2,778 and 2,778 Class A
shares of Financial Services Fund, Small Cap Financial Fund and Small Cap Value
Fund, respectively, and the Adviser owned 3 Class A shares of Realty Growth
Fund. Transactions in each class of each Fund's capital stock were as follows:
<TABLE>
<CAPTION>
FINANCIAL SERVICES FUND(1)
------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------ ----------- -------------
<S> <C> <C> <C>
CLASS A
FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998
Shares.................................. 2,718,479 1,264,645 21,591
Value................................... $ 49,948,773 $22,051,855 $368,559
FOR THE PERIOD JANUARY 3, 1997*
THROUGH OCTOBER 31, 1997
Shares.................................. 1,780,567 287,368 --
Value................................... $ 24,819,794 $4,177,025 --

CLASS B
FOR THE PERIOD ENDED
OCTOBER 31, 1998
Shares.................................. 15,770 356 --
Value................................... $ 285,507 $ 5,435 --

CLASS C
FOR THE PERIOD ENDED
OCTOBER 31, 1998
Shares.................................. 7,477 508 --
Value................................... $ 142,163 $ 8,892 --

<CAPTION>
SMALL CAP FINANCIAL FUND(2)
-------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------ ------------ -------------
<S> <C> <C> <C>
CLASS A
FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998
Shares.................................. 5,542,368 4,625,031 30,657
Value................................... $102,935,286 $85,511,079 $548,154
FOR THE PERIOD JANUARY 3, 1997*
THROUGH OCTOBER 31, 1997
Shares.................................. 2,658,638 187,440 --
Value................................... $ 41,558,998 $ 3,063,008 --
CLASS B
FOR THE PERIOD ENDED
OCTOBER 31, 1998
Shares.................................. 116,064 1,737 --
Value................................... $ 2,136,313 $ 32,386 --
CLASS C
FOR THE PERIOD ENDED
OCTOBER 31, 1998
Shares.................................. 18,586 2,101 --
Value................................... $ 356,715 $ 36,338 --

<CAPTION>
SMALL CAP VALUE FUND(3)
------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------ ----------- -------------
CLASS A
FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998
Shares.................................. 1,025,042 495,349 15,001
Value................................... $ 17,827,469 $7,960,605 $248,119
FOR THE PERIOD JANUARY 3, 1997*
THROUGH OCTOBER 31, 1997
Shares.................................. 506,468 14,177 --
Value................................... $ 7,100,953 $ 197,856 --
CLASS B
FOR THE PERIOD ENDED
OCTOBER 31, 1998
Shares.................................. 27,061 3,310 --
Value................................... $ 464,328 $ 50,989 --
CLASS C
FOR THE PERIOD ENDED
OCTOBER 31, 1998
Shares.................................. 3,846 554 --
Value................................... $ 67,066 $ 8,521 --
</TABLE>
<TABLE>
<CAPTION>
REALTY GROWTH FUND**(4)
------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------ ----------- -------------
<S> <C> <C> <C>
CLASS A
FOR THE PERIOD APRIL 1, 1998 THROUGH
OCTOBER 31, 1998
Shares.................................. 143,851 93,361 22,029
Value................................... $1,769,579 $1,082,426 $218,262
FOR THE PERIOD APRIL 1, 1997
THROUGH MARCH 31, 1998
Shares.................................. -- -- --
Value................................... -- -- --

<CAPTION>
GRANDVIEW-SM- REALTY GROWTH FUND
-------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
CLASS A
FOR THE PERIOD APRIL 1, 1998 THROUGH
OCTOBER 31, 1998
Shares.................................. -- -- --
Value................................... -- -- --
FOR THE PERIOD APRIL 1, 1997
THROUGH MARCH 31, 1998
Shares.................................. 105,845 44,171 10,869
Value................................... $1,463,197 $594,012 $153,559
</TABLE>

- ---------------------
* Commencement of investment operations.
** Reported amounts include the results of the Realty Growth Fund for the
period April 1, 1998 through October 31, 1998. Prior to September 18, 1998,
the Realty Growth Fund operated as the GrandView-SM- Realty Growth Fund,
which has a fiscal year end of March 31, 1998. Sales transactions include
additional shares and their associated dollar value from the conversion of
GrandView-SM- S&P-Registered Trademark- REIT Index Fund into the Realty
Growth Fund on September 18, 1998.
(1) Class B and C shares commenced its initial public offering on April 24, 1998
and May 8, 1998, respectively.
(2) Class B and C shares commenced its initial public offering on April 21, 1998
and April 24, 1998, respectively.
(3) Class B and C shares commenced its initial public offering on April 23, 1998
and May 26, 1998, respectively.
(4) Class B shares have not commenced their initial public offering.

32
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FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Prior to April 18, 1998, there was a 1.00% redemption fee on Class A shares
redeemed, which were held 90 days or less. For the period November 1, 1997
through April 17, 1998, these fees amounted to $28,710, $128,967 and $5,839 for
Financial Services Fund, Small Cap Financial Fund and Small Cap Value Fund,
respectively. The redemption fees were collected and retained by each Fund for
the benefit of the remaining shareholders.

5. SECURITIES LENDING

Loans of securities are required at all times to be secured by collateral equal
to at least 102% of the market value of the securities on loan. However, in the
event of default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral may be subject to legal proceedings. In the
event that the borrower fails to return securities, and cash collateral being
maintained by the borrower is insufficient to cover the value of loaned
securities and provided such collateral insufficiency is not the result of
investment losses, the lending agent has agreed to pay the amount of the
shortfall to the Funds. The value of securities on loan to brokers and the
related collateral and indemnification received at October 31, 1998, were as
follows:

<TABLE>
<CAPTION>
VALUE OF SECURITIES ON VALUE OF COLLATERAL AND
FUND LOAN INDEMNIFICATION
- ---------------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Financial Services Fund............................. $ 2,110,286 $ 2,176,847
Small Cap Financial Fund............................ 949,945 1,022,054
Small Cap Value Fund................................ 2,363,417 2,578,882
Realty Growth Fund.................................. 98,135 114,520
</TABLE>

The cash collateral was reinvested into repurchase agreements which was in turn
collateralized by Fannie Mae and Freddie Mac REMICs.

For the fiscal year ended October 31, 1998 (except for Realty Growth Fund which
is for the period September 21, 1998 through October 31, 1998), income from
securities lending was $8,322, $5,677, $7,710 and $54 for Financial Services
Fund, Small Cap Financial Fund, Small Cap Value Fund and Realty Growth Fund,
respectively. Such income from securities lending is included under the caption
INTEREST in the Statement of Operations.

33
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----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. COLLATERAL FOR REPURCHASE AGREEMENTS

Listed below is the collateral associated with the repurchase agreements with
Bear, Stearns & Co. Inc., outstanding at October 31, 1998:

FINANCIAL SERVICES FUND

<TABLE>
<CAPTION>
FACE INTEREST TOTAL
ISSUER AMOUNT MATURITY RATE VALUE
- ---------------------------------------------------- ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Fannie Mae REMIC, Series 1993-234, Class SC......... 1,309,499 12/25/08 5.625% $ 1,176,670
Freddie Mac REMIC, Series 1630, Class SA............ 6,235,000 11/15/23 3.870 5,036,695
Freddie Mac REMIC, Series 1614, Class YS............ 4,325,000 11/15/23 6.012 4,045,527
Freddie Mac REMIC, Series 1620, Class SC............ 1,475,000 11/15/23 -- 940,327
--------------
Total........................................................................................... $ 11,199,219
--------------
--------------
</TABLE>

SMALL CAP FINANCIAL FUND

<TABLE>
<CAPTION>
FACE INTEREST TOTAL
ISSUER AMOUNT MATURITY RATE VALUE
- ----------------------------------------------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Fannie Mae REMIC, Series 1993-207, Class Z........... 2,969,100 11/25/23 6.500% $ 3,847,925
Freddie Mac REMIC, Series 1630, Class SA............. 1,575,000 11/15/23 3.870 1,272,301
-------------
Total............................................................................................ $ 5,120,226
-------------
-------------
</TABLE>

SMALL CAP VALUE FUND

REALTY GROWTH FUND

34
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----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND
FBR REALTY GROWTH FUND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. SUBSEQUENT EVENTS

On December 8, 1998, the Trust's Board of Trustees declared dividends and
distributions to shareholders for the following Funds:

<TABLE>
<CAPTION>
ORDINARY INCOME (39.6%)
-------------------------------- LONG-TERM
NET INVESTMENT SHORT-TERM CAPITAL GAINS
FUND INCOME CAPITAL GAINS (20%)
- ------------------------------------------------------------------------- -------------- ---------------- -------------
<S> <C> <C> <C>
Financial Services Fund:
Class A................................................................ $ 0.1198 $ 0.3208 $ 0.9694
Class B................................................................ 0.1149 0.3208 0.9694
Class C................................................................ 0.0996 0.3208 0.9694

Small Cap Financial Fund:
Class A................................................................ 0.0708 1.3333 0.6006
Class B................................................................ 0.0635 1.3333 0.6006
Class C................................................................ 0.0514 1.3333 0.6006

Small Cap Value Fund:
Class A................................................................ -- 0.2119 0.2224
Class B................................................................ -- 0.2027 0.2224
Class C................................................................ -- 0.1986 0.2224
</TABLE>

Such amounts are payable on December 16, 1998, to shareholders of record on
December 10, 1998.

Effective December 10, 1998, Class B and C shares of the Funds are no longer
offered for sale. In addition, effective December 21, 1998, Class A shares will
be offered without a front-end sales charge.

The Adviser has voluntarily undertaken to waive a portion of its investment
advisory fees and assume certain expenses of each Fund to the extent annual fund
operating expenses exceed 1.95% for Class A shares of each Fund's average daily
net assets (2.00% for Class A shares of Realty Growth Fund's average daily net
assets).

The distributor of the Funds' is FBR Investment Services, Inc. Friedman,
Billings, Ramsey & Co., Inc. will no longer serve as co-distributor to the
Funds.

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----------------

FBR FINANCIAL SERVICES FUND

FBR SMALL CAP FINANCIAL FUND

FBR SMALL CAP VALUE FUND

FBR REALTY GROWTH FUND

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Trustees

of the FBR Family of Funds:

We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the FBR Financial Services Fund, FBR Small Cap
Financial Fund, FBR Small Cap Value Fund and FBR Realty Growth Fund (the
"Trust"), as of October 31, 1998, and the related statements of operations
changes in net assets and financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The statement
of changes in net assets and the financial highlights of the GrandView-SM-
Realty Growth Fund for each of the three periods ended March 31, 1998, were
audited by other auditors, whose report dated April 24, 1998, expressed an
unqualified opinion thereon.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and the application of
alternative procedures with respect to unsettled securities transactions. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Trust as of October 31, 1998, the results of their operations, changes in net
assets, and financial highlights for the periods presented, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Vienna, VA

December 17, 1998

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FBR FINANCIAL SERVICES FUND

FBR SMALL CAP FINANCIAL FUND

FBR SMALL CAP VALUE FUND

FBR REALTY GROWTH FUND

SHAREHOLDER TAX INFORMATION -- (UNAUDITED)

Each Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of each Fund's fiscal year
end (October 31, 1998) as to the U.S. federal tax status of distributions
received by each Fund's shareholders in respect of such fiscal year. During the
fiscal year ended October 31, 1998, the following dividends and distributions
per share were paid by each of the Funds' Class A shares:

<TABLE>
<CAPTION>
ORDINARY INCOME (39.6%)
----------------------------------------------
SHORT-TERM CAPITAL
FUND NET INVESTMENT INCOME GAINS
- --------------------------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
Financial Services Fund.............................................. $ 0.0430 $ 0.1901
Small Cap Financial Fund............................................. 0.0322 0.1505
Small Cap Value Fund................................................. -- 0.4874
</TABLE>

The percentage of total ordinary income dividends from the Financial Services
Fund, Small Cap Financial Fund and Small Cap Value Fund qualifying for the
corporate dividends received deduction for each Fund is 64.41%, 46.77% and
5.77%, respectively.

These amounts were reported to shareholders as income in 1997. Because each
Fund's fiscal year is not the calendar year, another notification will be sent
with respect to calendar year 1998. The second notification, which will reflect
the amount, if any, to be used by calendar year taxpayers on their U.S. federal
income tax returns, will be made in conjunction with Form 1099-DIV and will be
mailed in January 1999.

Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend. They will generally not be entitled to a foreign tax
credit or deduction for the withholding taxes paid by the Funds, if any.

In general, dividends received by tax-exempt recipients (e.g., IRAs and Keoghs)
need not be reported as taxable income for U.S. federal income tax purposes.
However, some retirement trusts (e.g., corporate, Keoghs and 403(b)(7) plans)
may need this information for their annual information reporting.

Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Funds.

37
<PAGE>
FBR FAMILY OF FUNDS

Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

1-888-888-0025
e-mail: [email protected]
Internet: http://www.fbrfunds.com

INVESTMENT ADVISER
FBR Fund Advisers, Inc.
Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

DISTRIBUTOR
FBR Investment Services, Inc.
Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167

ADMINISTRATION AND ACCOUNTING SERVICES/
TRANSFER AGENT
PFPC Inc.
Bellevue Corporate Center
400 Bellevue Parkway
Wilmington, DE 19809

CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
8000 Towers Cresent Drive
Vienna, VA 22182

COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006

This report is submitted for the general information of the shareholders of each
Fund. It is not authorized for the distribution to prospective investors in each
Fund unless it is preceded or accompanied by a current prospectus which includes
details regarding each Fund's objectives, policies, fees and other information.
Total return is based on historical results and is not intended to indicate
future performance. The investment return and principal value of an investment
in each Fund will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than original cost.

10/98ANNUAL