FBR FAMILY OF FUNDS, N-30D, 1998-06-26

FBR FAMILY OF FUNDS
N-30D, 1998-06-26

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<PAGE>
FBR FAMILY OF FUNDS

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

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

[LOGO]

SEMI-ANNUAL REPORT
APRIL 30, 1998

<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

LETTER TO SHAREHOLDERS

June 10, 1998

Dear Shareholder:

We have a great deal to report about the progress of the FBR Family of Funds
since we last wrote to you in December. As of May 31, 1998, our three funds had
approximately $193.6 million in total net assets in 13,100 separate accounts, up
from 3,800 shareholders and $75.6 million on October 31, 1997. On April 18,
1998, we converted our funds from no-load to a multiple class, load distribution
structure. This should help us generate much more consistent and stable asset
flows, which will be a significant benefit to all shareholders.

The FBR Family of Funds operates under an October 31 fiscal year end.
Consequently, this semi-annual report compares total return for each fund with
appropriate benchmarks for periods ending April 30, 1998. While we do not manage
our funds to generate short-term performance, we are pleased to report that to
date all of our funds have had strong performance for shareholders. From the
commencement of investment operations on January 3, 1997, FBR Financial Services
Fund had an average annual return of 46.88%, FBR Small Cap Financial Fund was up
49.74%, and FBR Small Cap Value Fund (formerly FBR Small Cap Growth/Value Fund)
was up 40.86%. This is compared to the S&P 500 and the Russell 2000, which were
up 38.75% and 26.83%, respectively, over the same time period. Detailed
performance data for each class of shares of each Fund can be found in the
"Financial Highlights" section of this report.

The funds have also measured up well versus their peers. According to Lipper
Analytical Services*, for the one year ended March 31, 1998, FBR Small Cap Value
Fund was ranked eleventh out of 493 small cap funds. Among financial services
funds, for the same period, FBR Financial Services Fund was ranked fourth out of
thirty-two funds, while FBR Small Cap Financial Fund was ranked fifteenth.

We appreciate your support and will continue to work diligently on your
behalf to find the best investment opportunities available in the financial
services and small cap arenas. Please call our toll free information line at
1-888-888-0025 with any questions or comments.

Sincerely,
[SIGNATURE] [SIGNATURE]
Eric F. Billings C. Eric Brugel
Chairman President
FBR Family of Funds FBR Family of Funds

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

* Based on total return. 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 the 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, the rankings would have been different.

2
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES 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 FINANCIAL SERVICES LIPPER FINANCIAL
FUND S&P 500 SERVICES
CLASS A SHARES COMPOSITE INDEX FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Feb. 28, 1997 $10,942 $10,762 $11,138
Apr. 30, 1997 $10,567 $10,936 $11,006
Jun. 30, 1997 $11,842 $12,121 $12,252
Aug. 31, 1997 $12,400 $12,353 $12,872
Oct. 31, 1997 $13,358 $12,593 $13,678
Dec. 31, 1997 $14,774 $13,402 $14,975
Feb. 28, 1998 $15,340 $14,528 $15,629
Apr. 30, 1998 $16,649 $15,425 $16,756
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
APRIL 30, 1998 ANNUAL(4)
----------------- ------------
<S> <C> <C>
FBR Financial Services Fund(2)
Class A shares(3)............................. 57.56% 46.88%
S&P 500 Composite Index(1)...................... 41.05 38.75
Lipper Financial Services Fund Index(1)......... 52.25 47.59
</TABLE>

- ------------------------
(1) The chart assumes a hypothetical $10,000 initial investment in the Fund and
reflects related Fund expenses. Investors should note that the Fund is a
professionally managed mutual fund while the indices are either unmanaged
and do not incur expenses and/or 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) Total returns do not include initial maximum sales charges, 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.
(4) For the period January 3, 1997 (commencement of investment operations)
through April 30, 1998.

3
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP FINANCIAL 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 SMALL CAP LIPPER FINANCIAL
FINANCIAL FUND SERVICES FUND
CLASS A SHARES RUSSELL 2000 INDEX INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Feb. 28, 1997 10,908 10,052 11,138
Apr. 30, 1997 10,617 9,604 11,008
Jun. 30, 1997 12,125 11,129 12,252
Aug. 31, 1997 12,883 11,911 12,872
Oct. 31, 1997 14,608 12,213 13,678
Dec. 31, 1997 15,810 12,347 14,975
Feb. 28, 1998 16,088 13,071 15,629
Apr. 30, 1998 17,081 13,695 16,756
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
APRIL 30, 1998 ANNUAL(4)
--------------- ------------
<S> <C> <C>
FBR Small Cap Financial Fund(2)
Class A shares(3).................................... 60.89% 49.74%
Russell 2000 Index(1).................................. 36.95 26.83
Lipper Financial Services Fund Index(1)................ 52.25 47.59
</TABLE>

4
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP VALUE 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 SMALL CAP VALUE FUND
CLASS A SHARES RUSSELL 2000 INDEX LIPPER SMALL CAP FUND INDEX
<S> <C> <C> <C>
Jan. 3, 1997 $10,000 $10,000 $10,000
Feb. 28, 1997 $9,925 $10,052 $9,759
Apr. 30, 1997 $9,750 $9,604 $9,091
Jun. 30, 1997 $11,333 $11,129 $10,727
Aug. 31, 1997 $13,042 $11,911 $11,476
Oct. 31, 1997 $13,917 $12,213 $11,739
Dec. 31, 1997 $14,430 $12,347 $11,641
Feb. 28, 1998 $15,116 $13,071 $12,338
Apr. 30, 1998 $15,751 $13,695 $12,943
Past performance is not predictive of future
performance.
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURNS
ONE YEAR ENDED AVERAGE
APRIL 30, 1998 ANNUAL(4)
--------------- -----------
<S> <C> <C>
FBR Small Cap Value Fund(2)
Class A shares(3).................... 61.55% 40.86%
Russell 2000 Index(1).................. 36.95 26.83
Lipper Small Cap Fund Index(1)......... 42.36 21.47
</TABLE>

5
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND

PORTFOLIO OF INVESTMENTS

<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
BANKS - SUPER REGIONAL (CONTINUED)
29,100 KeyCorp............................................... $ 1,154,906
8,500 Mellon Bank Corporation............................... 612,000
15,000 NationsBank Corporation............................... 1,136,250
18,200 Norwest Corporation................................... 722,312
18,000 PNC Bank Corp......................................... 1,087,875
4,600 U.S. Bancorp.......................................... 584,200
9,500 Wachovia Corporation.................................. 806,906
3,200 Wells Fargo & Company................................. 1,179,200
------------
11,139,308
------------
FINANCIAL SERVICES -- 12.5%
12,500 Capital One Financial Corporation..................... 1,200,781
27,000 CIT Group, Inc. (The), Class A........................ 956,812
7,000 CMAC Investment Corporation........................... 451,938
8,300 Duff & Phelps Credit Rating Co........................ 473,100
14,400 Fannie Mae............................................ 862,200
10,500 Jefferies Group, Inc.................................. 519,094
8,000 Lehman Brothers Holdings Inc.......................... 568,500
21,500 MBNA Corporation...................................... 728,313
5,000 Morgan Stanley, Dean Witter & Co...................... 394,375
7,000 PMI Group, Inc. (The)**............................... 568,750
14,000 Providian Financial Corporation....................... 842,625
18,350 SLM Holding Corporation............................... 783,316
------------
8,349,804
------------
INSURANCE - LIFE/HEALTH -- 6.4%
13,000 AFLAC Incorporated.................................... 845,000
13,000 American General Corporation.......................... 866,125
20,000 AmerUs Life Holdings, Inc., Class A................... 640,000
</TABLE>

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

6
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
INSURANCE - LIFE/HEALTH (CONTINUED)
10,000 Equitable Companies Incorporated (The)................ $ 613,750
14,700 Hartford Life, Inc., Class A.......................... 726,731
6,700 Lincoln National Corporation.......................... 595,044
------------
4,286,650
------------
INSURANCE - MULTI-LINE -- 3.3%
14,000 Allmerica Financial Corporation....................... 876,750
4,000 Hartford Financial Services Group, Inc. (The)......... 443,000
16,000 UNUM Corporation**.................................... 860,000
------------
2,179,750
------------
SAVINGS & LOANS - SAVINGS BANKS -- 27.9%
17,000 ALBANK Financial Corporation.......................... 892,500
27,000 Astoria Financial Corporation......................... 1,582,875
16,050 Charter One Financial, Inc............................ 1,086,384
28,250 Commercial Federal Corporation........................ 1,024,063
22,535 Downey Financial Corp................................. 781,683
26,000 FirstFed Financial Corp.*............................. 1,189,500
15,000 Golden State Bancorp Inc.*............................ 585,000
11,800 Golden West Financial Corporation..................... 1,242,688
22,300 GreenPoint Financial Corp............................. 885,031
11,000 H. F. Ahmanson & Company.............................. 838,750
49,500 Independence Community Bank Corp.*.................... 906,469
7,000 Long Island Bancorp, Inc.............................. 462,000
19,300 Ocean Financial Corp.................................. 762,350
21,400 Peoples Heritage Financial Group, Inc................. 1,032,550
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - SAVINGS BANKS (CONTINUED)
59,500 Richmond County Financial Corp........................ $ 1,167,688
50,800 Staten Island Bancorp, Inc............................ 1,155,700
40,940 Washington Federal, Inc............................... 1,151,438
11,120 Washington Mutual, Inc................................ 779,095
33,700 Webster Financial Corporation......................... 1,141,587
------------
18,667,351
------------
Total Common Stocks
(Cost $52,803,835).................................. 62,722,009
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 6.4%
REPURCHASE AGREEMENT -- 6.4%
4,268,114 Bear, Stearns & Co. Inc. (Agreement dated 04/30/98 to
be repurchased at $4,268,754) 5.40%, 05/01/98 (Note
6) (Cost $4,268,114)................................ 4,268,114
------------
Total Investments -- 100.3% (Cost $57,071,949)........ 66,990,123
Liabilities in Excess
of Other Assets -- (0.3)%........................... (196,217)
------------
Net Assets -- 100.0%.................................. $ 66,793,906
------------
------------
</TABLE>

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

* Non-income producing.

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

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

7
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP FINANCIAL FUND

PORTFOLIO OF INVESTMENTS

<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
15,000 LASER Mortgage Management, Inc....................... $ 225,000
-------------
1,642,875
-------------
SAVINGS & LOANS - SAVINGS BANKS -
CENTRAL -- 15.2%
32,500 Alliance Bancorp..................................... 910,000
41,350 Calumet Bancorp, Inc.*............................... 1,509,275
37,000 Cameron Financial Corporation........................ 781,625
35,900 Delphos Citizens Bancorp, Inc........................ 776,337
58,700 FFY Financial Corporation**.......................... 2,054,500
27,000 First Indiana Corporation............................ 678,375
68,500 Hallmark Capital Corp.*.............................. 1,044,625
13,100 Industrial Bancorp, Inc.............................. 288,200
102,000 Jacksonville Bancorp, Inc............................ 2,154,750
20,000 Local Financial Corporation*......................... 252,500
107,900 Logansport Financial Corp............................ 1,928,712
30,900 MAF Bancorp, Inc..................................... 1,245,656
75,900 North Central Bancshares, Inc........................ 1,831,087
21,400 Peoples Bancorp...................................... 457,425
12,800 QCF Bancorp, Inc.*................................... 393,600
19,000 St. Francis Capital Corporation...................... 838,375
23,500 Wells Financial Corp................................. 499,375
-------------
17,644,417
-------------
SAVINGS & LOANS - SAVINGS BANKS -
EAST -- 55.7%
43,600 Abington Bancorp, Inc................................ 861,100
14,225 Affiliated Community Bancorp, Inc.................... 554,775
25,700 ALBANK Financial Corporation......................... 1,349,250
51,000 Andover Bancorp, Inc................................. 2,205,750
37,500 Bay State Bancorp, Inc.*............................. 1,129,687
90,000 Bayonne Bancshares, Inc.............................. 1,485,000
</TABLE>

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

8
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP FINANCIAL FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - SAVINGS BANKS -
EAST (CONTINUED)
45,900 BostonFed Bancorp, Inc............................... $ 1,118,813
30,000 Brookline Bancorp, Inc.*............................. 521,250
54,000 Catskill Financial Corporation....................... 958,500
34,000 Delaware First Financial Corporation*................ 484,500
42,600 Dime Community Bancorp, Inc.......................... 1,203,450
60,000 Dime Financial Corporation........................... 2,115,000
87,300 First Bell Bancorp, Inc.............................. 1,822,388
29,500 First Federal Savings & Loan Association of East
Hartford........................................... 1,180,000
72,100 First Keystone Financial, Inc........................ 1,487,063
38,000 First Shenango Bancorp, Inc.......................... 1,748,000
68,000 First Source Bancorp Inc............................. 722,500
40,900 FIRSTFED AMERICA BANCORP, INC.*...................... 950,925
72,600 GA Financial, Inc.................................... 1,433,850
20,000 Harris Financial, Inc................................ 513,750
65,800 Haven Bancorp, Inc................................... 1,723,138
59,600 Hingham Institution For Savings...................... 2,123,250
77,000 Independence Community Bank Corp.*................... 1,410,063
5,300 JSB Financial, Inc................................... 293,156
19,700 KSB Bancorp, Inc..................................... 361,988
23,033 MASSBANK Corp........................................ 1,220,749
43,000 MECH Financial, Inc.................................. 1,333,000
49,000 Medford Bancorp, Inc................................. 2,143,750
18,500 MSB Bancorp, Inc..................................... 654,438
29,500 Mystic Financial, Inc................................ 501,500
58,000 Northeast Pennsylvania Financial Corp.*.............. 899,000
58,300 Ocean Financial Corp................................. 2,302,850
54,700 Pamrapo Bancorp, Inc................................. 1,531,600
60,125 Parkvale Financial Corporation....................... 1,984,125
<CAPTION>
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - SAVINGS BANKS -
EAST (CONTINUED)
108,200 PennFed Financial Services, Inc...................... $ 1,934,075
50,891 Peoples Bancorp, Inc................................. 547,078
22,900 Progressive Bank, Inc................................ 983,269
57,000 Pulse Bancorp, Inc................................... 1,539,000
22,700 Reliance Bancorp, Inc................................ 896,650
115,000 Richmond County Financial Corp....................... 2,256,875
44,000 Roslyn Bancorp, Inc.**............................... 1,311,750
50,300 SIS Bancorp, Inc..................................... 2,150,325
100,000 Staten Island Bancorp, Inc........................... 2,275,000
96,500 Statewide Financial Corp............................. 2,575,344
81,000 Warwick Community Bancorp, Inc.*..................... 1,427,625
27,000 WSFS Financial Corporation........................... 577,125
25,900 WVS Financial Corp................................... 1,029,525
50,100 Wyman Park Bancorporation, Inc.*..................... 745,238
76,700 Yonkers Financial Corporation........................ 1,457,300
27,000 York Financial Corp.................................. 664,875
-------------
64,699,212
-------------
SAVINGS & LOANS - SAVINGS BANKS -
SOUTH -- 2.4%
8,700 First Palm Beach Bancorp, Inc........................ 330,056
3,500 First Savings Bancorp, Inc........................... 77,875
57,500 HCB Bancshares, Inc.................................. 905,625
54,800 Texarkana First Financial Corporation................ 1,544,675
-------------
2,858,231
-------------
SAVINGS & LOANS - SAVINGS BANKS -
WEST -- 11.4%
13,000 First Colorado Bancorp, Inc.......................... 380,250
51,500 FirstFed Financial Corp.*............................ 2,356,125
19,600 Horizon Financial Corp............................... 347,900
</TABLE>

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

9
<PAGE>
FBR FAMILY OF FUNDS
----------------

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.

10
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP VALUE FUND

PORTFOLIO OF INVESTMENTS

APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 98.9%
AUTO REPAIR -- 2.8%
60,000 Precision Auto Care, Inc.*............................. $ 645,000
------------
BEVERAGES - NON-ALCOHOLIC -- 4.6%
145,500 Pepsi-Cola Puerto Rico Bottling Company*............... 1,045,781
------------
BUSINESS SERVICES -- 7.2%
1,800 BARRA, Inc.*/**........................................ 43,200
5,000 Duff & Phelps Credit Rating Co......................... 285,000
30,000 Fair, Isaac and Company, Incorporated**................ 1,192,500
34,000 On-Site Sourcing, Inc.*/**............................. 102,000
------------
1,622,700
------------
COMMUNICATIONS -- 8.6%
26,500 American Radio Systems Corporation*.................... 1,757,281
2,700 SFX Broadcasting, Inc., Class A*....................... 198,956
------------
1,956,237
------------
COMPUTER SERVICES -- 6.6%
125,000 Powerhouse Technologies, Inc.*......................... 1,234,375
29,100 VISTA Information Solutions, Inc.*..................... 269,175
------------
1,503,550
------------
CONSUMER SERVICES -- 1.4%
12,000 PCA International, Inc................................. 307,500
------------
DISTRIBUTION - WHOLESALE -- 2.3%
65,000 Rentrak Corporation*................................... 511,875
------------
ENTERTAINMENT -- 0.4%
2,700 SFX Entertainment, Inc., Class A....................... 93,150
------------

<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
FINANCE - SPECIALTY -- 0.4%
2,000 Jefferies Group, Inc................................... $ 98,875
------------
GAMING -- 10.9%
97,000 Alliance Gaming Corporation*........................... 457,719
21,000 Colonial Downs Holdings, Inc., Class A*................ 81,375
165,000 Penn National Gaming, Inc.*............................ 1,753,125
37,000 WMS Industries Inc.*................................... 189,625
------------
2,481,844
------------
HEALTH CARE -- 6.1%
44,500 United Payors & United Providers, Inc.*................ 1,379,500
------------
HOLDING COMPANIES -- 0.8%
80 Berkshire Hathaway, Inc., Class B*..................... 183,600
------------
INSURANCE - LIFE -- 3.2%
10,000 Life Re Corporation**.................................. 720,000
------------
INSURANCE - PROPERTY/CASUALTY -- 11.8%
75,000 American Safety Insurance Group, Ltd.*................. 1,078,125
10,000 Markel Corporation*.................................... 1,585,000
------------
2,663,125
------------
MANUFACTURING - MISCELLANEOUS -- 6.5%
100,000 Zindart Limited ADR*................................... 1,462,500
------------
MANUFACTURING - SPECIALTY -- 7.8%
67,000 II-VI Incorporated*/**................................. 1,206,000
4,200 Kaydon Corporation..................................... 184,013
10,000 OshKosh B'Gosh, Inc., Class A.......................... 385,000
------------
1,775,013
------------
</TABLE>

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

11
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR SMALL CAP VALUE FUND

PORTFOLIO OF INVESTMENTS (CONTINUED)

APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
MOTOR SPORTS -- 11.3%
20,000 Dover Downs Entertainment, Inc......................... $ 655,000
45,000 Grand Prix Association of Long Beach, Inc.*............ 849,375
23,800 International Speedway Corporation, Class B............ 868,700
5,275 Penske Motorsports, Inc.*/**........................... 180,998
------------
2,554,073
------------
MOVIES & ENTERTAINMENT -- 2.4%
5,800 AMC Entertainment Inc.*................................ 111,650
14,000 Carmike Cinemas, Inc., Class A*........................ 424,375
------------
536,025
------------
POWER PRODUCERS -- 0.3%
1,400 AES Corporation*....................................... 77,263
------------
PUBLISHING -- 1.2%
25,000 Golden Books Family Entertainment, Inc.*............... 282,813
------------
RESTAURANTS -- 2.3%
25,000 Lone Star Steakhouse & Saloon, Inc.*................... 531,250
------------
Total Common Stocks (Cost $20,552,059)................. 22,431,674
------------
<CAPTION>

NUMBER OF
CONTRACTS
- ---------
<C> <S> <C>
CALL OPTION PURCHASED -- 1.2%
BANKS - SUPER REGIONAL -- 1.2%
40 Wells Fargo & Company, Expiring 01/15/99 @ $320.00*
(Cost $81,808)....................................... 277,500
------------
<CAPTION>

- ---------------------------------------------------------------------------------
SHARES VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C>
WARRANTS -- 0.2%
BANKS - MONEY CENTER -- 0.2%
200 Bank of New York Co., Inc. (The), Expiring 11/29/98 @
$15.50* (Cost $20,170)............................... $ 35,200
------------
<CAPTION>

PRINCIPAL
AMOUNT
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 3.7%
REPURCHASE AGREEMENT -- 3.7%
846,890 Bear, Stearns & Co. Inc. (Agreement dated 04/30/98 to
be repurchased at $847,017) 5.40%, 05/01/98 (Note 6)
(Cost $846,890)...................................... 846,890
------------
Total Investments -- 104.0%
(Cost $21,500,927)................................... 23,591,264
Liabilities in Excess
of Other Assets -- (4.0)%............................ (918,185)
------------
Net Assets -- 100.0%................................... $ 22,673,079
------------
------------
</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.

12
<PAGE>
FBR FAMILY OF FUNDS
----------------

STATEMENT OF ASSETS AND LIABILITIES

APRIL 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
FBR FBR FBR
FINANCIAL SMALL CAP SMALL CAP
SERVICES FUND FINANCIAL FUND VALUE FUND
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Investments, at value (cost -- $57,071,949, $100,978,117, $21,500,927,
respectively)................................................................. $66,990,123 $115,439,491 $ 23,591,264
Cash........................................................................... 30,724 18,815 --
Collateral received for securities loaned (Note 5)............................. 573,645 1,618,997 2,264,639
Receivable for Fund shares sold................................................ 204,066 514,311 117,640
Receivable from investment adviser............................................. 12,872 3,004 3,113
Receivable for investments sold................................................ 62,788 2,054,954 --
Dividends and interest receivable.............................................. 94,424 128,521 10,345
Deferred organization costs and other assets................................... 73,000 77,053 69,550
------------- -------------- ------------
Total assets................................................................. 68,041,642 119,855,146 26,056,551
------------- -------------- ------------
LIABILITIES
Payable upon return of securities loaned (Note 5).............................. 573,645 1,618,997 2,264,639
Payable for Fund shares redeemed............................................... 111,082 1,367,331 41,339
Payable for investments purchased.............................................. 310,503 206,500 977,149
Distribution fees payable (Class A, B and C shares)............................ 12,707 23,284 4,385
Organization costs payable..................................................... 24,942 24,942 24,941
Accrued expenses and other liabilities......................................... 214,857 443,923 71,019
------------- -------------- ------------
Total liabilities............................................................ 1,247,736 3,684,977 3,383,472
------------- -------------- ------------
NET ASSETS
Capital stock (unlimited number of shares authorized, with no par value)....... 55,618,980 98,944,922 20,000,123
Undistributed net investment income............................................ 67,407 232,761 20,563
Accumulated net realized gain from investments and options transactions, if
any........................................................................... 1,189,345 2,531,112 562,056
Net unrealized appreciation on investments and options transactions, if any.... 9,918,174 14,461,374 2,090,337
------------- -------------- ------------
Net assets applicable to shares outstanding.................................. $66,793,906 $116,170,169 $ 22,673,079
------------- -------------- ------------
------------- -------------- ------------
CLASS A
Net assets..................................................................... $66,774,833 $115,819,566 $ 22,624,528
------------- -------------- ------------
Shares outstanding............................................................. 3,388,415 5,709,197 1,232,370
------------- -------------- ------------
Net asset value per share...................................................... $19.71 $20.29 $18.36
------------- -------------- ------------
------------- -------------- ------------
Maximum offering price per share (net asset value plus sales charge of 5.50%*
of the offering price)........................................................ $20.85 $21.47 $19.43
------------- -------------- ------------
------------- -------------- ------------
CLASS B
$ 19,073 $ 316,651 $ 48,551
Net assets.....................................................................
------------- -------------- ------------
Shares outstanding............................................................. 968 15,599 2,645
------------- -------------- ------------
Net asset value and offering price per share**................................. $19.70 $20.30 $18.35
------------- -------------- ------------
------------- -------------- ------------
CLASS C
-- $ 33,952 --
Net assets.....................................................................
------------- -------------- ------------
Shares outstanding............................................................. -- 1,674 --
------------- -------------- ------------
Net asset value and offering price per share**................................. -- $20.28 --
------------- -------------- ------------
------------- -------------- ------------
</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.

13
<PAGE>
FBR FAMILY OF FUNDS
----------------

STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
FBR FBR
FINANCIAL SMALL CAP FBR
SERVICES FINANCIAL SMALL CAP
FUND FUND VALUE FUND
------------ ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................................... $ 309,246 $ 622,642 $ 90,603
Interest.................................................................... 95,750 312,074 36,270
------------ ------------- ------------
404,996 934,716 126,873
------------ ------------- ------------
EXPENSES
Advisory fees............................................................... 177,161 369,987 57,985
Administration and accounting fees.......................................... 32,021 61,645 12,705
Distribution fees - Class A................................................. 49,211 102,774 16,107
Distribution fees - Class B................................................. 3 43 4
Distribution fees - Class C................................................. -- 2 --
Federal and state registration fees......................................... 18,712 31,818 13,382
Transfer agent fees and expenses............................................ 29,077 27,377 11,382
Amortization of organization expenses....................................... 6,020 6,020 6,020
Trustees' fees and expenses................................................. 3,833 9,233 5,590
Custodian fees and expenses................................................. 11,449 15,493 6,377
Printing.................................................................... 6,936 6,823 1,670
Audit and legal fees........................................................ 19,914 29,068 7,885
Insurance................................................................... 6,825 6,655 6,757
Other....................................................................... 1,246 1,365 1,113
------------ ------------- ------------
Total expenses before waivers and related reimbursements.................. 362,408 668,303 146,977
Less: waivers and related reimbursements.................................. (37,610) (11,349) (40,667)
------------ ------------- ------------
Total expenses after waivers and related reimbursements................... 324,798 656,954 106,310
------------ ------------- ------------
Net investment income....................................................... 80,198 277,762 20,563
------------ ------------- ------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
OPTIONS TRANSACTIONS, IF ANY
Net realized gain/(loss) from:
Investments............................................................... 1,210,756 2,533,078 569,096
Options transactions...................................................... -- -- (6,870)
Net change in unrealized appreciation on:
Investments............................................................... 6,963,945 10,161,888 835,000
Options transactions...................................................... -- -- 173,335
------------ ------------- ------------
Net realized and unrealized gain on investments and
options transactions, if any............................................... 8,174,701 12,694,966 1,570,561
------------ ------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......................... $8,254,899 $12,972,728 $ 1,591,124
------------ ------------- ------------
------------ ------------- ------------
</TABLE>

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

14
<PAGE>
FBR FAMILY OF FUNDS
----------------

STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FBR FINANCIAL SERVICES FUND FBR SMALL CAP FINANCIAL FUND
---------------------------------- ----------------------------------
FOR THE SIX FOR THE PERIOD FOR THE SIX FOR THE PERIOD
MONTHS ENDED JANUARY 3, 1997* MONTHS ENDED JANUARY 3, 1997*
APRIL 30, 1998 THROUGH APRIL 30, 1998 THROUGH
(UNAUDITED) OCTOBER 31, 1997 (UNAUDITED) OCTOBER 31, 1997
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).................... $ 80,198 $ 57,764 $ 277,762 $ 55,672
Net realized gain from investments and options
transactions, if any........................... 1,210,756 290,507 2,533,078 468,570
Net change in unrealized appreciation on
investments and options transactions, if any... 6,963,945 2,954,229 10,161,888 4,299,486
-------------- ---------------- -------------- ----------------
Net increase in net assets resulting from
operations..................................... 8,254,899 3,302,500 12,972,728 4,823,728
-------------- ---------------- -------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ (70,555) -- (100,673) --
Net realized capital gains
Class A shares................................ (311,918) -- (470,536) --
-------------- ---------------- -------------- ----------------
Total dividends and distributions to
shareholders................................... (382,473) -- (571,209) --
-------------- ---------------- -------------- ----------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from the sale of shares............ 40,218,405 24,819,794 94,693,595 41,558,998
Cost of shares repurchased...................... (5,650,912) (4,170,199) (34,834,937) (3,054,221)
Shares issued in reinvestment of dividends...... 368,559 -- 548,154 --
-------------- ---------------- -------------- ----------------
Increase in net assets derived from capital
share transactions............................. 34,936,052 20,649,595 60,406,812 38,504,777
-------------- ---------------- -------------- ----------------
Total increase in net assets.................... 42,808,478 23,952,095 72,808,331 43,328,505
NET ASSETS
Beginning of period............................. 23,985,428 33,333 43,361,838 33,333
-------------- ---------------- -------------- ----------------
End of period................................... $66,793,906(1) $23,985,428(2) $116,170,169(3) $43,361,838(4)
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------

<CAPTION>
FBR SMALL CAP VALUE FUND
----------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JANUARY 3, 1997*
APRIL 30, 1998 THROUGH
(UNAUDITED) OCTOBER 31, 1997
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS
Net investment income/(loss).................... $ 20,563 $ (22,318)
Net realized gain from investments and options
transactions, if any........................... 562,226 271,761
Net change in unrealized appreciation on
investments and options transactions, if any... 1,008,335 1,082,002
-------------- ----------------
Net increase in net assets resulting from
operations..................................... 1,591,124 1,331,445
-------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income
Class A shares................................ -- --
Net realized capital gains
Class A shares................................ (249,613) --
-------------- ----------------
Total dividends and distributions to
shareholders................................... (249,613) --
-------------- ----------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from the sale of shares............ 14,958,418 7,100,953
Cost of shares repurchased...................... (2,143,487) (197,214)
Shares issued in reinvestment of dividends...... 248,119 --
-------------- ----------------
Increase in net assets derived from capital
share transactions............................. 13,063,050 6,903,739
-------------- ----------------
Total increase in net assets.................... 14,404,561 8,235,184
NET ASSETS
Beginning of period............................. 8,268,518 33,334
-------------- ----------------
End of period................................... $22,673,079(5) $8,268,518
-------------- ----------------
-------------- ----------------
</TABLE>

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

* Commencement of investment operations.

(1) Includes undistributed net investment income of $67,407.

(2) Includes undistributed net investment income of $57,764.

(3) Includes undistributed net investment income of $232,761.

(4) Includes undistributed net investment income of $55,672.

(5) Includes undistributed net investment income of $20,563.

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

15
<PAGE>
FBR FAMILY OF FUNDS
----------------

FINANCIAL HIGHLIGHTS

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

Contained below is per share operating performance data for each class of shares
outstanding, total investment return, 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 PERIOD
SIX MONTHS APRIL 24, 1998** FOR THE PERIOD
ENDED APRIL 30, THROUGH JANUARY 3, 1997*
1998 APRIL 30, 1998 THROUGH
(UNAUDITED) (UNAUDITED) OCTOBER 31, 1997
------------- --------------- ---------------
CLASS A CLASS B CLASS A
--------------- ---------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE***
Net asset value, beginning of
period.......................... $ 16.03 $ 20.12 $ 12.00
--------------- -------- --------
Net investment
income/(loss)(1)................ 0.02 0.01 0.04
Net realized and unrealized
gain/(loss) on investments and
options transactions, if
any(2).......................... 3.89 (0.43) 3.99
--------------- -------- --------
Net increase/(decrease) in net
assets resulting from
operations...................... 3.91 (0.42) 4.03
--------------- -------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income............ (0.04) -- --
Net realized capital gains....... (0.19) -- --
--------------- -------- --------
Total dividends and distributions
to shareholders................. (0.23) -- --
--------------- -------- --------
Net asset value, end of period... $ 19.71 $ 19.70 $ 16.03
--------------- -------- --------
--------------- -------- --------
Total investment return(3)....... 24.64% (2.09)% 33.58%
--------------- -------- --------
--------------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $66,775 $ 19 $23,985
Ratio of expenses to average net
assets(1)(5).................... 1.65% 2.40% 1.65%
Ratio of net investment
income/(loss) to average net
assets(1)(5).................... 0.41% 1.64% 0.57%
Increase/(Decrease) reflected in
above expense ratios and net
investment income/ (loss) due to
waivers and related
reimbursements(5)............... 0.19% 0.70% 1.42%
Portfolio turnover rate.......... 16.76% 16.76% 49.68%
Average commission rate per
share(4)........................ $0.0526 $0.0526 $0.0571
</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 shares outstanding throughout the respective periods
are not in accordance with the changes in the aggregate gains and losses on
investments during the respective periods because of the timing of sales
and repurchases of Fund shares in relation to fluctuating net asset values
during the respective periods.

(3) 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. Total
investment return is not annualized.

(4) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the
respective periods for which commissions were charged, as required by the
Securities and Exchange Commission.

(5) Annualized.

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

16
<PAGE>
<TABLE>
<CAPTION>
FBR SMALL CAP FINANCIAL FUND
-------------------------------------------------------------------------
FOR THE FOR THE PERIOD FOR THE PERIOD
SIX MONTHS APRIL 21, 1998** APRIL 24, 1998** FOR THE PERIOD
ENDED THROUGH THROUGH JANUARY 3, 1997*
APRIL 30, 1998 APRIL 30, 1998 APRIL 30, 1998 THROUGH
(UNAUDITED) (UNAUDITED) (UNAUDITED) OCTOBER 31, 1997
------------- --------------- --------------- ---------------
CLASS A CLASS B CLASS C CLASS A
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE***
Net asset value, beginning of
period.......................... $ 17.53 $ 20.39 $ 20.53 $ 12.00
--------------- -------- -------- --------
Net investment
income/(loss)(1)................ 0.05 0.01 0.01 0.02
Net realized and unrealized
gain/(loss) on investments and
options transactions, if
any(2).......................... 2.89 (0.10) (0.26) 5.51
--------------- -------- -------- --------
Net increase/(decrease) in net
assets resulting from
operations...................... 2.94 (0.09) (0.25) 5.53
--------------- -------- -------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income............ (0.03) -- -- --
Net realized capital gains....... (0.15) -- -- --
--------------- -------- -------- --------
Total dividends and distributions
to shareholders................. (0.18) -- -- --
--------------- -------- -------- --------
Net asset value, end of period... $ 20.29 $ 20.30 $ 20.28 $ 17.53
--------------- -------- -------- --------
--------------- -------- -------- --------
Total investment return(3)....... 16.93% (0.44)% (1.22)% 46.08%
--------------- -------- -------- --------
--------------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $115,819 $ 317 $ 34 $43,362
Ratio of expenses to average net
assets(1)(5).................... 1.60% 2.40% 2.40% 1.65%
Ratio of net investment
income/(loss) to average net
assets(1)(5).................... 0.68% 1.51% 4.00% 0.57%
Increase/(Decrease) reflected in
above expense ratios and net
investment income/ (loss) due to
waivers and related
reimbursements(5)............... 0.03% 0.05% 0.05% 1.43%
Portfolio turnover rate.......... 18.98% 18.98% 18.98% 35.41%
Average commission rate per
share(4)........................ $ 0.0523 $0.0523 $0.0523 $0.0524

<CAPTION>
FBR SMALL CAP VALUE FUND
------------------------------------------------------
FOR THE FOR THE PERIOD
SIX MONTHS APRIL 23, 1998** FOR THE PERIOD
ENDED THROUGH JANUARY 3, 1997*
APRIL 30, 1998 APRIL 30, 1998 THROUGH
(UNAUDITED) (UNAUDITED) OCTOBER 31, 1997
------------- --------------- ---------------
CLASS A CLASS B CLASS A
--------------- ---------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE***
Net asset value, beginning of
period.......................... $ 16.70 $ 18.74 $ 12.00
--------------- -------- --------
Net investment
income/(loss)(1)................ 0.05 0.02 (0.05)
Net realized and unrealized
gain/(loss) on investments and
options transactions, if
any(2).......................... 2.10 (0.41) 4.75
--------------- -------- --------
Net increase/(decrease) in net
assets resulting from
operations...................... 2.15 (0.39) 4.70
--------------- -------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM
Net investment income............ -- -- --
Net realized capital gains....... (0.49) -- --
--------------- -------- --------
Total dividends and distributions
to shareholders................. (0.49) -- --
--------------- -------- --------
Net asset value, end of period... $ 18.36 $ 18.35 $ 16.70
--------------- -------- --------
--------------- -------- --------
Total investment return(3)....... 13.18% (2.08)% 39.17%
--------------- -------- --------
--------------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $22,625 $ 49 $ 8,269
Ratio of expenses to average net
assets(1)(5).................... 1.65% 2.40% 1.65%
Ratio of net investment
income/(loss) to average net
assets(1)(5).................... 0.32% 13.94% (0.79)%
Increase/(Decrease) reflected in
above expense ratios and net
investment income/ (loss) due to
waivers and related
reimbursements(5)............... 0.63% 1.15% 3.84%
Portfolio turnover rate.......... 33.80% 33.80% 42.59%
Average commission rate per
share(4)........................ $0.0558 $0.0558 $0.0488
</TABLE>

17
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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 four 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) ("Value Fund")
(each a "Fund" and collectively, the "Funds") and FBR Information Technologies
Fund. Financial Services Fund and Small Cap Financial Fund are diversified
portfolios and 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 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. Each class of each Fund has an unlimited
number of shares authorized with no par value. Financial Services Fund, Small
Cap Financial Fund and Value Fund commenced investment operations on January 3,
1997. As of April 30, 1998, Class C shares of the Financial Services Fund and
Value Fund have not commenced their initial public offering. Currently, shares
of the FBR Information Technologies Fund are not being offered.

ORGANIZATIONAL MATTERS -- Prior to commencing investment operations on January
3, 1997, the Funds 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 of Financial Services Fund, Small Cap Financial Fund and
Value Fund, respectively, to Friedman, Billings, Ramsey & Co., Inc. ("FBR") on
December 16, 1996. Costs of approximately $60,727, $60,727, and $60,726 which
were incurred by Financial Services Fund, Small Cap Financial Fund and 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 of the 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 the 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

18
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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 April 30, 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 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 by the
premiums paid. Financial Services Fund and Small Cap Financial Fund did not
engage in options transactions during the six months ended April 30, 1998.

<TABLE>
<CAPTION>
CALL OPTIONS PURCHASED
--------------------------
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 FBR Fund Advisers, Inc. (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.

19
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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. 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
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. 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 either considered
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.

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 Funds a monthly
fee equal to an annual rate of 0.90% of each 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 (exclusive of brokerage commissions, taxes,
interest and extraordinary items) to the extent that such expenses exceeded
1.65% of each Fund's average daily net assets. Effective April 18, 1998, the
Adviser has voluntarily undertaken to limit each Fund's total operating expenses
(exclusive of brokerage commissions, taxes, interest and extraordinary items) to
the extent that such expenses exceed 1.65%, 2.40% and 2.40% of each Fund's Class
A, B and C shares average daily net assets, respectively. As necessary, these
limitations were effected by waivers by the Adviser

20
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

of its advisory fees and reimbursements of expenses exceeding the advisory fee.
For the six months ended April 30, 1998, investment advisory fees, waivers and
reimbursements of expenses were as follows:

<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY ADVISORY EXPENSE
FUND FEES FEE WAIVERS FEES REIMBURSEMENTS
- ----------------------------------------------- ----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Financial Services Fund........................ $ 177,161 $ (37,610) $ 139,551 --
Small Cap Financial Fund....................... 369,987 (11,349) 358,638 --
Value Fund..................................... 57,985 (37,554) 20,431 $ (3,113)
</TABLE>

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, has 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, has 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 designated their outstanding no-load shares as Class A shares.
Under the New Plan in effect for the period April 18, 1998 through April 30,
1998, each Fund's Class A shares paid 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, 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 in effect for the period April 18, 1998 through
April 30, 1998, each Fund paid the Distributors a distribution fee at 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. The Distributors earned $49,214, $102,819 and $16,111 for Financial
Services Fund, Small Cap Financial Fund and Value Fund, respectively, in
distribution and service fees. The Distributors use the service fees to pay its
dealers whose clients hold Fund shares and the distribution fees to pay for
distribution-related activities.

Effective April 18, 1998, the Distributors of the Funds collect the sales charge
imposed on sales of each Fund's Class A shares, and reallow 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 six months ended April 30, 1998, the Distributors have advised each Fund
that they retained approximately $4,100, $900 and $400 in front-end sales
charges resulting from sales of Class A shares of the Financial Services Fund,
Small Cap Financial Fund and Value Fund, respectively. From these fees, the
Distributors paid such sales charges to dealers which in turn paid commissions
to salespersons. There were no amounts received by the Distributors in
contingent deferred sales charges ("CDSC") for Class B and C shares of each
Fund, except for Class B shares of Small Cap Financial Fund which had $380 in
CDSC.

21
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. INVESTMENT IN SECURITIES AND OPTIONS

For U.S. federal income tax purposes, the costs of securities and options, if
any, owned at April 30, 1998, were $57,090,800, $100,983,299 and $21,571,670 for
Financial Services Fund, Small Cap Financial Fund and Value Fund, respectively.
Accordingly, the net unrealized appreciation on investments and options
transactions, if any, were as follows:

<TABLE>
<CAPTION>
FUND APPRECIATION DEPRECIATION NET APPRECIATION
- --------------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Financial Services Fund.................................. $ 10,051,090 $ (151,767) $ 9,899,323
Small Cap Financial Fund................................. 14,671,376 (215,184) 14,456,192
Value Fund............................................... 2,874,821 (855,227) 2,019,594
</TABLE>

For the six months ended April 30, 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>
Financial Services Fund................................... $ 38,016,533 $ 6,374,322
Small Cap Financial Fund.................................. 73,638,119 13,826,912
Value Fund................................................ 17,251,327 4,267,218
</TABLE>

4. CAPITAL SHARE TRANSACTIONS

Prior to April 18, 1998, the Funds offered only no-load shares, which has been
designated as Class A shares. Effective April 18, 1998, the Funds offered three
classes of shares, which have been designated as Class A, B and C shares. As of
April 30, 1998, Class C shares of the Financial Services Fund and Value 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 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.

22
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

As of April 30, 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 Value Fund,
respectively. Transactions in each Fund's capital stock were as follows:
<TABLE>
<CAPTION>
FINANCIAL SERVICES FUND(1) SMALL CAP FINANCIAL FUND(2)
------------------------------------------ -------------------------------------------
SALES REPURCHASES REINVESTMENTS SALES REPURCHASES REINVESTMENTS
------------ ----------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
FOR THE SIX MONTHS ENDED
APRIL 30, 1998
Shares.................................. 2,196,173 325,325 21,591 5,066,083 1,861,519 30,657
Value................................... $ 40,198,928 $5,683,277 $368,559 $ 94,333,231 $34,960,041 $548,154
FOR THE PERIOD JANUARY 3, 1997*
THROUGH OCTOBER 31, 1997
Shares.................................. 1,780,567 287,368 -- 2,658,638 187,440 --
Value................................... $ 24,819,794 $4,177,025 -- $ 41,558,998 $ 3,063,008 --

CLASS B
FOR THE PERIOD ENDED
APRIL 30, 1998
Shares.................................. 968 -- -- 15,974 375 --
Value................................... $ 19,477 -- -- $ 326,364 $ 7,598 --

CLASS C
FOR THE PERIOD ENDED
APRIL 30, 1998
Shares.................................. -- -- -- 1,674 -- --
Value................................... -- -- -- $ 34,000 -- --

<CAPTION>
VALUE FUND(3)
------------------------------------------
SALES REPURCHASES REINVESTMENTS
------------ ----------- -------------
<S> <C> <C> <C>
CLASS A
FOR THE SIX MONTHS ENDED
APRIL 30, 1998
Shares.................................. 843,386 121,086 15,001
Value................................... $ 14,909,585 $2,150,611 $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
APRIL 30, 1998
Shares.................................. 2,645 -- --
Value................................... $ 48,833 -- --
CLASS C
FOR THE PERIOD ENDED
APRIL 30, 1998
Shares.................................. -- -- --
Value................................... -- -- --
</TABLE>

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

* Commencement of investment operations.

(1) Class B shares commenced its initial public offering on April 24, 1998.

(2) Class B and C shares each commenced their initial public offering on April
21, 1998 and April 24, 1998, respectively.

(3) Class B shares commenced its initial public offering on April 23, 1998.

Prior to April 18, 1998, there was a 1.00% redemption fee on Class A shares
redeemed, which have been held 90 days or less. For the period November 1, 1997
through April 17, 1998, these fees amounted to $32,365, $132,702 and $7,124 for
Financial Services Fund, Small Cap Financial Fund and Value Fund, respectively.
The redemption fees were collected and retained by each Fund for the benefit of
the remaining shareholders.

23
<PAGE>
FBR FAMILY OF FUNDS
----------------

FBR FINANCIAL SERVICES FUND
FBR SMALL CAP FINANCIAL FUND
FBR SMALL CAP VALUE FUND

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

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 April 30, 1998, were as
follows:

<TABLE>
<CAPTION>
VALUE OF SECURITIES ON VALUE OF COLLATERAL AND
FUND LOAN INDEMNIFICATION
- ---------------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Financial Services Fund............................. $ 571,230 $ 573,645
Small Cap Financial Fund............................ 1,539,938 1,618,997
Value Fund.......................................... 2,160,677 2,264,639
</TABLE>

The cash collateral was reinvested into a repurchase agreement which was in turn
collateralized by Fannie Mae REMICs.

For the six months ended April 30, 1998, income from securities lending was
$1,246, $3,062 and $2,006 for Financial Services Fund, Small Cap Financial Fund
and Value Fund, respectively. Such income from securities lending is included
under the caption INTEREST in the Statement of Operations.

6. COLLATERAL FOR REPURCHASE AGREEMENTS

Listed below is the collateral associated with the repurchase agreements with
Bear, Stearns & Co. Inc., outstanding at April 30, 1998:

FINANCIAL SERVICES FUND

<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
ISSUER AMOUNT MATURITY RATE VALUE
- ----------------------------------------------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Fannie Mae REMIC, Series 1994-51, Class F............ 4,455,000 03/25/24 6.343% $ 4,358,085
</TABLE>

SMALL CAP FINANCIAL FUND

VALUE FUND

24
<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

DISTRIBUTORS
Friedman, Billings, Ramsey & Co., Inc.
Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209

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

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

The financial information included herein is taken from the records of each Fund
without examination by independent auditors who do not express an opinion
thereon.

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.